In life there comes a point when many people look up at an ever growing pile of credit card debt and feel overwhelmed by the situation. Nobody ever starts out planning to get in debt, but it happens to many people over time. If you are reading this post right now then there’s a good chance that you are one of these people, looking up at what looks like an insurmountable amount of debt, desperate to find a way out.
The good news for you is that the very fact that you know you have a problem is a great first step that will help you to eventually find your way back to a more stable financial path. You have accepted that you have a problem, admitted you need help with that problem and are now gathering information about how to deal with the problem. Without a doubt, one of your best options is debt consolidation. But you have to be careful when using this option to deal with credit card debt. Choose the right path and things will get better for you in time. Choose the wrong path and you are going to be put in an even deeper financial hole.
For most people debt is a nightmare to deal with, the problems associated with debt are only made worse when you look at the state of the economy. If you are in debt then you are probably struggling with making your monthly payments, need help coming up with a more affordable repayment plan, and are also likely living in fear of having your accounts sent to a collections agency. In cases like these consolidating your credit card debt is often your last and best option at getting out of your dire financial straights.
When making a decision on whether the time is now to act you should look at how much you owe, what your interest rates are, and how close you are to defaulting on your credit card payments. While debt consolidation can seem scary it’s important that you don’t look at it as something scary, instead look at it as a path to fixing your problems. There are many different options available to you for debt consolidation, below we will outline several of them that could be good choices for you.
Balance Transfer Deals
If you are making payments to different credit card companies every month, and are having trouble keeping up with all of them, then trying to consolidate all of your debt onto one card is a good option for you to consider. There are quite a few credit card companies out there that will offer a zero percent APR on any balances you transfer from another credit card onto their card instead. Even if you aren’t able to get a zero percent APR if you are able to get a lower interest rate than you are currently paying then it’s still a good deal for you. When you are able to take advantage of this type of deal you can not only avoid having to keep track of multiple payments, you will also be able to pay less money monthly and over the term of repayment.
One thing you need to keep in mind is that after a preset period of time, generally around a year to year and a half, your APR will increase, usually substantially. That’s why it’s important to take advantage of the lower APR while you can and pay off as much of your debt as possible during this period of time. You should also take the time to do the math and figure out if you will be able to pay off the balance before the higher APR kicks in. While it’s unlikely, you may end up paying more money overall if you the regular APR of the new credit card company is higher than what you are currently paying.
Something that is also often overlooked when using a balance transfer deal is the fee that is usually involved. Many credit card companies that offer balance transfers do so because they charge a significant fee to do it. So make sure that you once again take the time to do the math and make sure that any balance transfer options you choose are a good deal for you. Above all else always read any agreements you sign carefully, and never do business with a credit card company that has deliberately confusing and difficult to understand agreements. Remember that while you should always do your homework, in many cases the right balance transfer deal can be a great option for getting you out of debt.
Use A Low-Interest Loan To Pay Off Higher Interest Rate Credit Card Debt
If a balance transfer credit card may not seem like the best fit for you, then another option you should consider is a debt consolidation loan. A debt consolidation loan is a loan you take out from a bank or other financial institution in order to pay off all of your credit cards, and then have a single, lower monthly payment to deal with instead. If you really want to get a handle on your debt you could take the money you are saving each month with this loan and apply it toward the principle, paying it off faster and saving you money.
There are many different types of financial institutions that offer debt consolidation loans. You should look at your bank or credit union, and an online lender may also be a good option for you. It’s important that you remember that anyone looking at giving you a loan is likely going to have a minimum credit score requirement, so finding this out ahead of time can save you a lot of time and potential aggravation. That’s why it’s also important to know your credit score up front since it will make you loan shopping process much easier on you.
One of the big advantages of a debt consolidation loan is that you can spread out your payments over the span of several years. This will generally give you a much lower and more manageable monthly payment, and if you have extra money you can always pay more toward the principle. While paying interest for a longer period of time will usually end up in you paying more money, this is a far better option than either barely scraping by or defaulting on your credit card payments.
Peer To Peer Lending
For many people with credit problems, a lower credit score can make it seem that getting a loan is all but impossible. The good news is that online peer to peer lending offers that can often help them to get the loan they need to start getting their financial life in order. Like other types of loans, the application process is going to involve several factors that will help perspective lenders to determine the risk level that you are at. What makes peer to peer lending unique is that the money is not loaned to you by a bank, instead it is loaned to you by a person who then gets a share of the profit from the interest you pay.
Because loan interest rates are based on risk, a person who feels that you are a good candidate will often offer you a lower interest rate in a peer to peer loan than you could get with a traditional loan. One of the reasons that people with lower credit scores are often successful in getting a loan in the peer to peer format is that many peer to peer lenders prefer to lend to people with lower credit scores. Lower credit scores mean higher interest rates, which means greater profit for the lender.
Debt Manage Plan Option
If you are having trouble keeping up with your payments then another option to consider is a debt management plan. Many banks and other financial institutions offer to sell these types of plans to people who are in financial trouble and cannot keep up with multiple monthly payments. A debt management company works on your behalf and speaks with creditors to help you to get a repayment plan you can live with. In most cases, a deal can be worked out where your late fees will be waived and your account will not be sent to collections while you work on taking care of your financial problems. In fact, some creditors can be convinced to lower your interest rate, which will give you lower payments and also enable them to recover their money more quickly.
One of the advantages of this type of plan is it still gives you access to your credit cards while you are working on paying off your debt. While the last thing you should do is add more debt to the ever growing pile, credit cards are important for financial security and can help you to avoid disaster should a major expense suddenly come up. While there is reasonable concern that this approach can lower your credit score, the fact is that the advantages of this type of plan far outweigh any potential negative aspects.
As you look at different options for companies to help you to deal with your debt remember that debt settlement and debt management companies can both help you, but they take different approaches to helping you. Debt settlement companies focus on reducing the total amount of the loan you have to pay on. Debt management companies focus on helping people to get lower payments which will help them to keep afloat on a month to month basis. A settlement will generally improve your credit score since it shows as debt being paid, debt management can hurt your score because it can be reported by creditors as partial payments.
Do Your Homework
No matter what path you choose to taking care of your credit card debt the first step is going to be to gather all of the relevant financial information together so you can get a clear picture of what is going on. The first thing you should do is get three copies of your credit report, which you can get for free from Annualcreditreport.comforfree. Look at your credit score and credit factors carefully and make sure that there aren’t any errors on it, and make sure the report is up to date. While this process can seem tedious just keep in mind that even a small mistake in a credit report can have huge implications.
Always keep an eye on your credit score through the debt consolidation process so that you can make sure you are moving in the right direction. As a final word of advice, your best options are always going to be either a balance transfer card or a debt consolidation loan since they will enable you to save money and keep your credit score from being hurt in the process.