For many who have more debt than they ever meant to get into, opening the monthly credit card statements can be really frustrating. This can actually happen much more quickly that you might imagine. Credit cards carry such high interest rates that a little debt can quickly become a mountain debt when interest rates are considered. If you have any credit card debt, it is probably too much and you need to find a few to get out. Many people turn to debt consolidation to aid them as they pay down credit card balance.

Do I Need to Consolidate My Credit Card Debt?

If you are trying to get out of debt, consolidating your debt is a good way to accomplish this. However, consolidating debt can be tricky and if not done correctly you can quickly find that you have more debt than you started with. Make sure that every decision you make is focused on obtaining one primary goal- getting out of debt. To accomplish this, find ways to reduce financing charges, interest, fees and overall debt with every move. Do not make a move that will not accomplish one of these 4 key pillars to debt consolidation.

What Are My options?

There are many options out there for those with too much credit card debt. Let’s look at each of them in a little more depth so that you can decide which is right for your situation.

Put All Your Debt on One Credit Card

Many people set out to lessen the challenge of their credit cards by combining all of their credit cards on one card. Think about it, do you get introductory credit cards in the mail each day? Many people do. If you want to use this method, look through the offers that you receive and try to find one that is better that what you are currently receiving. Look for things like low interest rates, low fees and the ability to hold all of your credit card balances. The goal is to better your position by transferring all of your balances to one card to save money.

How to Choose

For this method to work, you have to look carefully to find the right card. You need to find a card offering a better deal than the cards you already have. If you don’t choose the new card carefully, you could end up in a worse position and with more debt than you already have. This could even end up ruining your credit history if you don’t do it carefully. Use caution and only choose a replacement card if you find one that truly is better. Before making this decision, look at these factors before making your decision.

Introductory Rate: Many introductory rates are very low as they are used to entice new cardholders to getting their card. Before making a decision, look at the introductory rate carefully and see how long the rate will last. Some introductory rates are short term, so you need to make sure that they will last long enough to be worth your while. Many introductory rates also carry strict stipulations and may be revoked if you don’t make your payments on time. Read the conditions carefully and make sure that you understand the terms so that you don’t lose your new low rates.

Introductory Rate and Balance Transfers: Often credit cards have a couple of different rates: one for purchases and another for balance transfers. Make sure that your rate applies to both, since you will be using this card to transfer balances.

What are the Normal Rates: You need to look at both the introductory rate and the actual interest rate. Since the introductory rates won’t last long term, it is important to make sure that you can either pay off the entire balance during the introductory time, or handle the new rates once they kick in. If the new rates are higher than what you have already, it may not be worth the transfer.

Annual Fees: Sometimes cards use a low interest rate to entice customers and then institute an annual fee to compensate. Look into any applicable fees and carefully add these into the overall expenses when selecting card.
Balance Transfer Fees: Does the new card you are considering include a balance transfer fee? Most do, so you need to look carefully to see how much. Some cards charge a percentage and others cap the amount so that you will not have to pay more than a certain amount. Make sure that whatever your select will be a better deal in the long run.

Consolidate Debt Using a Loan

Another option that you might want to look into is getting a standard loan to cover the amount of your total credit card debt. These debt consolidation loans can be useful because they allow you to spread your payments overtime thus lowering your monthly payments. This can be especially useful for those looking to reduce their monthly payments. One great thing about this method is that you can set up one standard monthly payment which makes budgeting and planning easier.

How to Choose

When using a debt consolidation loan, you need to carefully consider all the aspects involved. Sure, your monthly payments will be lower, which is a benefit. However, these lower payments are extended over a longer period of time. This means that you will be paying down your balances much longer. You need to carefully consider your situation and look at these factors before making your final decision.

Interest Rates: Generally these loans carry lower interest rates than credit cards. To find out if this situation is worth it, you need to know what the rates are and how much you will saving by making the move.

Loan Term: Some loans carry a set term and others you can choose yourself. If you have an option, choose the loan with the shortest term where you can definitely handle the monthly payment. The goal is to get out of debt, and you want to do this as quickly as possible. This will save you on interest while helping you to pay down your balances more quickly.

Calculate: To make sure that it is worth making the switch, you need to evaluate your options and determine if it is better to transfer or to keep paying on your credit cards. You see, you will be saving on interest, however you will be paying over a longer term. You need to look at both options and figure out which will cost less in the long run.

Will it Hurt My Credit Score?

You need to consolidate carefully or you will end up in more of a mess than you started with. If you do it right however, you won’t end up hurting your credit. Here is a strategy to use to make sure that your credit remains intact after debt consolidation.

Keep Debt to 50%: To keep your credit score as high as possible, you need to keep your credit balances to less than 50% of your available credit. If you transfer all of your balances to one card and make it near its limit and cancel the others, it will look like you are carrying more debt than you can handle. Consolidate but wait to close older cards so that you can keep your credit score as high as possible.

Hold on to Your Cards: The goal is to have a few open credit cards as these help your credit score. Once you have paid off your debt, hold onto a few of your oldest cards. Try to keep between 2-4 cards as this will help your overall credit score.

Stop Getting New Cards: Once you have paid off your credit cards, you will probably continue to get new credit card offers in the mail. Don’t look at these offers. Even if you find other, better offers, don’t get new cards. You don’t need to get back into debt so sit back and keep the cards you have.

Controlling Debt

Debt is scary and can quickly spiral out of control. If you are ready to take control of your finances, it is time to consider a debt consolidation loan. By getting one of these loans you may be able to successfully pay down your balances. Keep your end goal in sight and make sure that every decision you make will put closer to your goal of becoming debt free.

Author Bio: Learn more about debt consolidation
and how to manage your credit cards.

Category: Finances
Keywords: credit cards, debt consolidation, debt