In this era if easy credit, people become use to using multiple credit cards and too often lose track of their total credit card debt amount. Many panic when they can no longer make the many monthly payments and end up being plagued by debt collectors or worse.
If you are in danger of falling into this same trap, you might want to consider credit card debt consolidation as a solution.
What is Credit Debt Consolidation?
Consolidation is a method of talking all or your various outstanding credit card bills and converting them into one monthly payment. For instance, suppose the total of all of your credit card balances add up to $20,000 and your multiple monthly payment add up to $950. Combining all of those debts into one new loan with only one payment due each month is called credit debt consolidation.
What Steps Should I take to See If Debt Consolidation is Good for Me?
Check Your Credit Reports & Scores – Check your credit reports to make sure they are accurate. If you do find an error, dispute it. This step could make the difference if a lender is willing to work with you in consolidating your debt payments.
Become Familiar With Your Options- There are several ways to consolidate your debt payments. Some plans are more affordable than others, and your credit card consolidation choices may be limited by your credit standing.
Figure the Math
Credit card debt consolidation may save you money in the long run and make it easier to pay down your debt, but it’s not a free service. Determine the total various costs involved in consolidating before you sing onto a plan. For instance, some credit cards have a balance transfer fee you’ll have to pay in order to consolidate the balance.
Add up the various costs involved to make sure the penalty costs don’t exceed the potential benefit of getting a lower payment and interest rate on your debt.
Also ask about new-loan origination fees to make sure the single loan payment amount fits your budget. In addition, ask about any other fees the new lender will require in order to make a good decision that benefits you.
Types of Consolidation Plans
The simplest plan is searching for a low-interest credit card that has a maximum loan amount that will accommodate your existing credit card balances. Qualify for the new card, pay off you old cards with it and eventually pay off the total with one lower monthly payment at the lower interest rate.
Other plans require using a loan broker. In most cases, you make one single payment directly to the new lender. They in turn negotiate with your old credit card holders and pay them directly until all of the old cards are paid off in full. The consolidation company will keep a certain amount of each of your monthly payments to them as their fee.
Maintain a Good Credit Score
Remember that credit card consolidation can affect your credit in various ways. For one, consolidating multiple balances onto one card could maximize your card’s credit limit and harm your credit utilization rate.
Additionally, closing all of your old credit card accounts can ding your credit score. Keeping those old credit cards open will not lower your credit utilization which accounts for 30% of your credit score.
After you’ve completed your debt payment program, some of your old creditors may re-establish your credit based on your new, debt-free status especially if you’ve maintained an on-time payment history
Commit to the Debt Consolidation Plan
Once you’ve agreed to a plan and have transferring credit card balances, be sure you make your new single payment on time every month.
Enrolling in a plan is only the beginning of your road to being credit debt free. To succeed, you have to stick to the plan. Make sure your payments are as agreed upon over the entire loan period.
Also keep tabs on how your credit card consolidation plan is affecting your credit periodically by reviewing your free annual credit reports.