Credit card consolidation.
Find help with consolidating credit card debt. There are banks, lenders, free non-profit credit counseling agencies, online companies and other organizations that provide assistance. Find some of the leading methods, tips to follow and learn about the credit card debt consolidation process below.
Consolidating debt on on one or more credit cards involves moving a balance from one card to another or taking out a loan, negotiating with lenders or other steps. The goal of a refi is to help borrowers, including people with bad credit, pay off their bills in less time as well as save money. When doing this, it is imperative that the new credit card or consolidation loan used has a lower, or ideally zero percent interest rate. If this is not done then the entire approach will not benefit the borrower. Discover different ways borrowers can consolidate their credit card debt.
Advantages of consolidating to low interest rate credit cards
Managing interest rates is one of the main keys to paying off and dealing with credit card debt. The lower the APR, the lower your monthly payment and the more of your payment goes towards the principal balance each and every month. Many experts say a low interest rate is the most important factor to paying off any bills in as short time as possible. Or look into ways to refinance credit card card debt.
If you have a high interest rate credit card, and if you also have a high balance on that card, you are paying a lot of your hard earned money to "borrow" that money from the lender or bank as interest. A lesser amount of your payment goes towards paying down the principal balance. Also, the minimum payment that the credit card company, whether Bank of America, Chase, Synchrony or another calculates for you to pay is only based only on accrued interest, so if you only pay that minimum payment every month you will never reduce the principal on your credit card debt. This makes the debt repayment process take much longer.
Credit card bills, and unpaid debts, can be consolidated. This option can also assist with car or auto loan refinancing as well. This can be one solution to use for debt help, especially when the interest rates are lower. In general, it involves taking out a new loan or financial obligation (debt) that is used to pay off other bills. However the new loan needs to have a lower interest rate and/or longer repayment term to make it work. Find a list of questions about credit card consolidation.
1) Credit card debt consolidation programs
If you decide to enter into a credit card debt consolidation program or use a third party to do this refi, expect that that they will do the best that they can to help you. Many consumers receive help as they will now be able to avoid the need to have to pay higher interest rates and expenses on their credit card bills. What you will do, or the company on your behalf, is negotiate a loan with a lower interest rate. This new loan will be the only bill that you need to pay on a monthly basis.
Many businesses, including non-profit credit counseling agencies, will help individuals get credit card debt help Banks or lenders will also offer this, including Capital One, BofA, Chase, Discover and others. They will usually operate as some type of consolidation company (either private or non-profit) and they focus their services on people that would like to obtain lower interest rates on their credit cards and pay less in interest expense. The company you work to consolidate a credit card with will communicate with the collection agency and/or your creditors, and the company will also arrange for you to receive lower interest rates as well as a more affordable payment plan.
The various steps that you will follow in a credit card consolidation assistance program are somewhat the same as those in a so called “general” debt consolidation program. As with any help you ever receive, you need to be sure to ask questions and also to do your research so that you are aware of how the consolidation program works before you sign up with the service provider or enroll in the program. There are several pros and benefits of credit card debt consolidation programs, and they include:
- 1. You should be able to get late fees waived and get back on track with making timely payments.
- 2. You will be able to pay off the credit card bills and debts with a lower overall interest rate and costs.
- 3. You can consolidate multiple bills and financial obligations into one monthly bill for a more manageable payment.
- 4. You will not be harassed by phone calls from debt collectors. Find more ways to get help from debt collectors.
After you sign up for and enter into some form of debt reduction and/or credit card consolidation program, you will then need to pay your monthly payments directly to the company that you are working with. You will no longer have to continue dealing with each individual creditor, bank, credit card company or lender. You will also not need to pay multiple bills on a monthly basis. The company that you choose to work with will take care of communicating with the various other creditors and lenders on your behalf. You will need to pay that company, and they will then send your monthly payments until the bills and debts have been paid off in full.
2) Consolidate credit cards by doing it yourself
You can also decide to consolidate your credit card debt on your own. This is possible to do, but in order to do this you will need an available account with a large enough balance. This is required so that you can hold and transfer your other debts on this one account. This additional account also needs to be at a lower overall rate than what you are currently paying or it will defeat the purpose.
The next step is to then transfer the outstanding balances to this single account and then to close all of the other, now unused accounts. After you do this, you will then just need to make your single payment each month. Since it is now only one payments, the process will be less complicated, easy to do, and saves times and money. It is easier than having to deal with several bills at once.
Most credit card balance transfer offers that you will encounter will include a fee of between 3-5% on the balance to be transfered. This can be significant. So be sure to look for either a credit card with 0% interest rate or no transfer fee, or one that has a maximum cost, such as a fixed dollar amount of $50-75. Those two tips can save you big money.
Before you go ahead and transfer any credit card balances, be sure to calculate how long it would take to accrue that much interest on each balance you currently have at your current interest rate. So this means determine how much you will pay right now, before any attempt at consolidation is done. For example, if the the current credit card you use has fairly low interest rates on it, then the balance transfer fee you will need to pay may cost you more than the accrued interest if you can pay off the on your current card relatively quickly. So do the calculations.
If you decide to take this approach, when you do transfer your outstanding credit card balances to one account with a new bank, you should not close every open account all at the same time as it could impact and lower your credit score. Even more important, for the account that you decide to consolidate to, you need to ensure it has a lower interest rate during a long enough duration of time. Also ensure that it doesn't jump up to a high interest rate after only a couple of months of time. As always, make sure you read the fine print, understand all of the terms of the new loan, and also be sure to read the application carefully before signing up or transferring balances.
Low balance transfer rates still exist. However, rate “surfing” makes sense only if you can pay off your outstanding credit card bills within the time frame of the low introductory rate. You do not want to have the debt not paid off if/when the rate resets. While you may be able to get another low rate credit card, the more time that this goes on, and the more low rate transfers you complete, the more risky this becomes. Read more and find a zero interest rate credit card..
Of course, you also need the lower interest rate on the account as after all your primary goal is to pay as much as possible towards principal (not interest) to try and reduce your credit card and other debt as quickly as you can. Find the best low interest rate credit card..
3) Use a debt consolidation loan
Yet another common option for debt reduction and credit card consolidation is to apply for a so called debt consolidation loan. Many companies, ranging from Paypal to Bank of America, American Express, SoFi, Lightstream and other offer this, In fact, almost all lenders (including credit unions) offer in person or online debt consolidation loans for people who want o consolidate their credit cards.
Again, the new interest rate paid is critical. Instead of transferring balances to a credit card, or using a card to reduce your overall debt levels, this is a completely new and separate loan. In order for this approach to work it needs to be issued at either a lower interest rate or have a longer repayment period, which will in effect reduce the monthly payment.
You will need to use it to pay off all other bills and debts that you may have, including any balances on your credit cards, student loans, auto payments and more. So this acts as a form of consolidation. Read about the top debt consolidation loans for reducing debts.
This new loan is very similar to a personal loan and it will offer people a longer timeframe to pay off and eliminate all of your bills. Because the payment terms are spread out over a longer period of time, the payments can be lower than all your currently combined credit card payments or other bills. Even better, if you decide to get a personal loan using collateral, such as a home equity line of credit or a second mortgage, you may be able to get a comparatively low rate of interest.
One of the downsides to this option is that while your monthly payment will be lower, you will more than likely be paying off the outstanding debts over a longer timeframe so your total interest paid in absolute dollars will be higher.
4) Consolidate credit card debt with a personal loan
These loans, whether secured or unsecured, can also help you consolidate bills. A pro is that personal loans are not backed by any collateral, such as your home, so therefore you don’t risk any personal property. This is a major positive. In addition you don’t risk losing your home when you take out this type of loan to consolidate your credit card debts. There are also personal loans for people with bad credit or that do not even have a bank account or social security number. Learn more on applying for hardship loans for low income borrowers..
However you still do need to be careful. Often the offer for the installment personal loan includes a fairly low interest rate, but a con is that usually you need to have excellent credit in order to qualify. Many lenders, including major banks like BofA or Citi, will not offer this form of financing for consolidating credit card debts. Also the lower your credit scores or rating, or if you have bad credit, the higher the interest rate you will need to pay for the amount of money borrowed. As with any option you decide on, carefully review the terms and fine print before you accept an offer for a personal loan. More on getting an unsecured installment loan.
5). Home equity loans for paying off credit cards
These loans often have lower interest rates than a credit card and also give you a tax deduction. The downside of a home equity loan is that the collateral is the house, so you need to ensure the loan is paid. Another disadvantage of using a home equity loan to consolidate credit card debt is the low-pressure repayment terms. Unfortunately many lenders are not in a hurry for you to pay a home equity loan back, which can cause some borrowers to fall into trouble.
Consolidate credit card bills and debts is by folding them into your home equity loan (home mortgage). Or families can take out a second mortgage or refinance their current home loan, or consolidate them into a line of credit. While not for everyone, this option to consolidate your debt has two big pros.
- The interest you need to pay on a mortgage or home equity loan may be tax deductible, thus resulting in a tower income tax bill.
- You will receive a much lower interest rate on your bills because the loan is backed by your home.
There are also some cons and risks:
- Number one is if you can’t make the new payment on your loan, you could potentially lose your home.
- You may need to pay more on your debt and accrued interest over time because the credit card balance is paid off over a longer term.
- If you refinance using a home equity loan, you may also have to pay for closing cost and fees, which can be expensive. Learn more and find additional refinancing of debts from home equity.
6) Nonprofit credit counseling agencies will help consolidate credit cards
Free non-profit credit counselors will help you navigate the process. You may want this to be your first stop. They are experts in helping consumers reduce and get out of debt, they will work with your creditors regularly to get interest rates reduced and late fees waived. Most non-profit agencies have direct relationships with credit card companies and banks, including American Express, Bank of America, Capital One, Chase, Citibank, Discover, U.S. Bank and Wells Fargo.
Sometimes what they will do is offer you the option of rather than consolidating debt, you need to pay them a fixed amount and they pay it out to your creditors. Read more and find a listing of the consolidation programs from numerous non-profit credit counseling agencies.
7) Renegotiate the payment and debt terms with your lenders
Or talk to a professional credit counselor (see above) to have them renegotiate your debt. Most lenders or creditors would rather renegotiate than sue you, repossess your home or car, or have to spend money to collect from you. You can go to your creditors and say something like, 'I know I am behind on my debt. Can we stretch out the payments?' It is pro-active and an honest relationship. Your creditors lose money if you default, or go bankrupt. Most lenders, banks and creditors will renegotiate any credit card debt due.
Sometimes consolidation can be combined with waiving a portion of the debt due. Or negotiations may be used as well. Some people are having success in calling the credit card company, such as Bank of America and Capital One, and asking them to waive some fees on a balance transfer. Find other ways to reduce and negotiate interest rate credit card debt.
Consolidate all bills along with credit card debt
There are other approaches to take that can help as well. Also, if you can, you should strongly consider consolidating your bills, loans and debt from all accounts, including medical debt consolidation. As some families are in debt from “non-traditional” lenders such as payday companies or stores. One way to do this is to move the balance from all of your accounts (such as store cards and personal loans) and your higher interest credit cards to one lender with a zero percent, or lower interest rate.
If you have about $200 of debt on each of your high interest rate credit cards or maybe a payday loans, say at a rate between between 11% and 22%, and if you move those balances onto another card which carries a low 5% interest rate, the significant money you are saving (potentially hundreds of dollars) by paying less in interest payments.
This approach allows all bills to be paid, no matter who the consumer owes the money too. This approach will allow you to reduce the principle on all of your other loans and debts, including your credit cards. The point being that borrowers can save money by consolidating all loans, debts, and bills at the same time - not just credit cards..
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