Credit Card Consolidation
Credit card consolidation is an effective option for many people trying to pay off credit card debt. If you're thinking about whether debt consolidation is a good idea for you, you are probably juggling several credit cards, and struggling to make monthly payments on each of them. If you're only paying off the minimum each month, you may be overwhelmed by the mounting interest, which makes it harder to pay down the principle amount. As the interest snowballs, and with the possible addition of late fees and over-the-limit fees, it can feel like it's impossible to ever get caught up. Even worse, you may not even be able to meet the minimum monthly credit card bills at all.
If any of this sounds familiar, now is the time to consider credit card consolidation, before the debt grows higher.
Can I Consolidate My Credit Cards on My Own
One question people often ask is "Can I consolidate my credit cards on my own, or do I need professional help from a debt consolidation company?" Another is: "Should I even consolidate my credit cards, or instead take out a credit card consolidation loan?"
Much depends on your personal circumstances. If you prefer to go it alone, you can:
- Try to consolidate your credit card debts onto one credit card that offers a lower interest rate. When you transfer balances to a new credit card provider, they usually charge a fee for the transfer. Read the fine print to see all the terms and conditions, including the interest rate once the introductory offer period is over. If you haven't paid off the balance by that date, it could work out more costly in the long-term. Check out CareOne's credit card consolidation calculator and other free credit card and interest rate calculator tools.
- Try to take out a lower interest loan from another lender to pay off your credit cards. This could include a home equity loan or another loan secured on personal collateral. Again, study the fine print to ensure the loan is truly your best option. If a loan is secured on collateral such as your family home, it's vital to weigh the risks if you fail to meet loan payments. Also, check that you're working with a reputable lender. You'll find tips in the CareOne article Debt Relief Solutions and how to Avoid Scams.
These go-it-alone strategies work for some people, but not for everyone. It might prove hard to get a loan or another credit card. Or the interest rates and fees on a new loan or credit card may leave you worse off than you were before. In those cases, people often turn to expert help via credit card consolidation programs.
Credit Card Consolidation Programs
Credit card consolidation programs with reputable debt relief companies are a proven method to help people tackle credit card debt. One major advantage of these programs is that the customer isn't struggling with the problem alone - the debt relief provider negotiates with credit card companies to agree on affordable monthly payments and other benefits to help reduce debts as quickly as possible.
Key facts to understand about credit card consolidation programs:
- You qualify to consolidate your credit cards debt if you owe $2,500 in unsecured debt, have a source of income, and have two or more credit card accounts. (Unsecured debt includes credit card debt.)
- Two plans that debt relief providers offer for consolidating your credit card debt without any new loans are: a Debt Management Plan or a Debt Settlement Plan. These consolidation programs are not debt consolidation loans and each has its own pros and cons.
- A Debt Management Plan (DMP) works to consolidate credit cards by combining the sums owed on different cards into a single affordable monthly payment. The debt relief company distributes your payment to each creditor as agreed. They will also work on your behalf to lower interest rates, and to reduce or eliminate late fees or over-the-limit fees.
- A Debt Settlement Plan (DSP) operates quite differently. You still make one affordable monthly payment to the credit card consolidation company, but they hold those funds in escrow while they negotiate with the credit card providers to agree to a reduced settlement on the total balance owed. Then the funds you've saved in your escrow account are used to pay back the agreed portion of the amount owed. However, as the debt is not repaid in full, this option has a negative impact on credit ratings. It's more often a solution for people who can't afford the monthly payments of a DMP, and can help them avoid bankruptcy.
All credit card consolidation programs require hard work and commitment in order to break the cycle of debt. On the other hand, taking the important first step to tackle debt by consolidating your credit card debts can save a lot of money, time, and stress in the long term.
When choosing a credit card consolidation company, consult a reputable organization that offers both options: a Debt Management Plan and a Debt Settlement Plan. Those companies are in a better position to advise on which plan is the most suitable fit for your personal situation. Companies with only one type of debt consolidation plan may recommend that option, even if it's not the best solution for your specific needs.