Racking up credit card bills is easy but paying them all off is very difficult. You can use a credit card consolidation strategy to ensure that you successfully escape from a debt trap.
Advertisers such as Colony Associates, White Mountain Partners, and Golden State Partners have been aggressively marketing credit card consolidation offers to consumers.
Basically, this means taking different credit card balances and combining them into a single monthly payment. The point is to ensure that the new debt has a somewhat lower annual percentage rate when compared to the rates of all of your credit cards combined. This has a variety of advantages:
o The reduction of the interest cost
o Shortening the overall payoff period of all the cards
o Making your payments more manageable
Here, it is pertinent to note that credit card consolidation will only work best if you have the highly specific goal of paying off all of your debt. It should, however, be remembered that piecemeal measures don’t account for much without a certain amount of fiscal self-discipline. After all, even if you decrease your credit card spending by a certain amount for a few weeks, it will creep up again if you don’t make changes to your lifestyle.
Some of the most common debt repayment strategies include the following:
The Debt Snowball Strategy
You might consider using a debt snowball strategy to help reduce your overall debt burden over an extended period of time. Basically, this system works if you have many credit cards and you start paying off your smaller debts first. At the same time, you should continue to make your minimum payments on the larger debts irrespective of their size.
This system is somewhat different from credit card consolidation because it does not compile all the debts in one account.
The main disadvantage of the debt snowball strategy is that it requires you to continue to make interest payments on all the credit cards simultaneously. Apart from that, it can take a very long time before you become completely debt-free, even as you continue making multiple interest payments to all your debtors.
It is always best to pay off all of your credit card debts on time and also keep your credit card balance as low as possible so that you will be able to improve your credit card score over time.
Yes, credit card consolidation has the potential to hurt your credit rating in case the lending agency conducts a comprehensive background check of your score. But in this case, you can rest assured that the damage will be minimal as the score will only drop by a few points at most.
Utilizing Credit Card Consolidation Loans
It is possible to utilize an unsecured loan from a bank or any other financial institution in order to thoroughly consolidate your credit card and other related debts. Taking a loan to pay off a loan might seem counterproductive, but that is not the case at all. For example, you can find an online lender who will give you an unsecured loan without compromising your credit ratings.
o Online Lenders
Some online lenders also offer the facility of making direct payments to the creditors. This means that the online lender will send the loan to the credit card company so that your loans are paid in full and now you only owe your online creditor.
o Using Bank Loans
Bank loans, on the other hand, might provide highly competitive interest rates if you are an existing customer with sound credit history with that bank. You might be able to get a really good discount for the purpose of your credit card consolidation. However, you will have to apply by going directly to your branch and talking to your account manager.
Utilizing Debt Management Plans for Credit Card Consolidation
You have to come up with a debt management plan if you feel that you are rapidly losing control of your debt. In theory, at least, it is a sound idea to bundle several debts into one lump sum monthly payment at a substantially reduced interest rate. This holds particularly true if you have a very low credit score and can’t really qualify for other easier options. But again, this is a futile exercise, if you cannot curb your spending habits. If you simply keep on piling your debts, your credit card consolidation will be in vain. If you feel that you cant be debt-free within the next half a decade or so, you should consider declaring bankruptcy.
If you don’t have a regular income, it will become even more difficult to ensure that you will be able to extricate yourself from a potentially messy debt situation. On the contrary, it is very likely that you will sink further into the debt trap. This is the part where a good credit counseling agency comes into the picture.
o Credit Counselling Agencies
The basic premise of credit counseling is pretty simple. The agency acts to instruct debt-ridden individuals by empowering them through different financial tools to ensure that they lead a debt-free life. They use different budgeting techniques and education to help people leave their debt burden behind. They also negotiate with lenders and come up with the best credit card consolidation plans to ensure that their clients are able to meet their financial and legal requirements.
Credit counseling service providers are usually contracted by the indebted individual to act on their behalf and help to relieve them from their terrible debt burdens.
Conclusion
The responsibility of reducing the debt ultimately stops at the borrower’s door. If you are not interested in reducing your debt burden, you will not be able to climb out of the debt trap. It is really that simple.
Always remember that the credit counseling agency can only advise you and encourage you to follow their suggestions. if you discard them and continue your old spending patterns, no amount of credit card consolidation can help you out of your debt-related troubles.
