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Credit Card Consolidation
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Bill Consolidation Company and Debt Management Programs
A bill consolidation company takes the hassle out of managing your debt. They handle your monthly payments, negotiations with your creditors, and repayment strategy for a small fee. Through reduced rates on your bills, debt management companies can save you years on debt payments. But before you sign up with a bill consolidation company, make sure they are skilled and have reasonable rates.
Debt reduction - Help on consolidating debt with a loan
The average household has approximately $9,000 in consumer debt. With high interest rates, and monthly minimums barely covering finance charges, it's no wonder that millions of Americans are getting deeper and deeper into debt. Everyone is likely familiar with an estimated credit card payoff. If you pay the minimum payment, without incurring additional charges, it would take thirty years to payoff... Read debt consolidation article
Credit Card Consolidation
Consolidate! It seems to be the new fad in the world of consumer debt - the magic bullet that will effectively rid your life of all problems with credit card debt.
The advertisers, credit counselors, and financial experts are all shouting out:
"Slash your interest rate!"
"Save thousands of dollars!"
"With one low, monthly payment you'll have extra money!"
And you know what? Consolidation can be a great option for digging your way out of credit card debt. But what the advertisements don't tell you is that it's not a magic bullet. Consolidation is a re-payment plan that is successful only when you are determined to do what it takes to make it work. It will take planning, determination, and a little elbow grease. But you can do it! Here's what you need to know.
Find the Underlying Cause
The first step in any debt re-payment plan is determining the underlying cause; otherwise, the problem will happen again and again. Typically the problem is not the credit card itself. They are a great tool of convenience and security. Many people use them in a financially responsible way everyday. So if the problem is not the credit card, what is?
Overspending Habits
Let's go ahead and face it. Sometimes the problem comes with just the bad habit of spending too much money. Credit expert Gerri Detweiler, author of The Ultimate Credit Handbook and founder of DebtConsolidationRx.com, says the two largest areas people tend to overspend is in the area of food and transportation. She's heard of people spending $160 a month at the office vending machine! So maybe it's time to take a reality check. Spend a month tracking every single expense down to the penny to see where your money is going. Then take the time, and maybe even help from a credit counselor, to setup a budget and a plan to stick with it.
A Life Crisis
Emergencies happen to everyone. Unfortunately people we love die, life-long careers disappear, and, as we've all seen in the news lately with Hurricane Katrina, natural disasters create havoc. All too often we are unprepared for such events and we end up putting a lot of expenses on credit cards. As you analyze your budget, it's a good idea to determine a set amount to save each month for emergencies. Ideally, if your budget allows for it, a good amount is 5-10% of your take-home income. But if you can't manage that much, then set aside as much as you can.
Big Life Events
Now I'm talking about events we expect - weddings, babies, college educations, family vacations, etc. Don't let these events sneak up on you without some financial planning. The earlier you start, the better off you'll be. And if for some reason the anticipated event doesn't occur, at least you've built yourself a nice little nest egg.
Setting Aside Credit Cards for a Time
When you start consolidating debt it's important not to accumulate any new debt. Trying to deal with a consolidation loan along with new consumer debt only builds layer upon layer of financial trouble. The accounts don't have to necessarily be closed, but at least put the credit cards in an inconvenient location such as in a cup of frozen water in the back of the freezer, a safe deposit box, or even six feet under in your backyard! Once the consolidation loan is paid off, you've brought your finances back under control, and you've learned new healthy financial habits, then go ahead and bring them out from hiding if you want.
Lower Payment vs. Lower Cost
A big mistake many people make when consolidating debt is looking at the payment amount alone. Sure you can lump all your payments together into one low monthly payment, but what is your interest rate, fees, and length of the loan? A $5,000 loan at 10% for 15 years with a monthly payment of only $53 will cost you $2,000 more than the same amount at 18% for 5 years with a monthly payment of $126.
Consolidation Options
Now let's take a look at some of the options for consolidating. When it comes to consolidating your credit card debt you have several options at your disposal, each with its own set of pros and cons. Here's a brief description of some popular options along with their relative pros and cons.
Low-Rate Credit Cards
If your credit rating is good enough to qualify for a low-rate credit card, possibly even a zero percent introductory rate, transferring all your higher rate credit card balances could be a good option. This option generally works best if you can pay the balance off within one year. Check out our Card Reports section to evaluate different low-rate credit card offers.
Pros
If you qualify for a low-introductory rate card you may get the benefit of not paying any interest for a time.
Cons
Excessive transfer and new account activity on your credit history could cause you to have a poor credit score. This is bad when your low-rate credit card expires and you aren't able to qualify for a new card. You could be stuck with a high interest rate.
Watch out for balance transfer fees. Fees could potentially outweigh any interest savings that you might realize.
Home Equity Loan or Home Equity Line of Credit
Because you're using your home as collateral for this type of debt, it's imperative that you really understand your repayment plan and deal with the issues that got you into debt in the first place. Detweiler suggests this is not a good option in a hardship or crisis situation, including a job loss, since failure to pay back a home equity loan could result in the loss of your home.
Pros
Usually a lower interest rate.
Interest is normally tax deductible.
Your monthly payment will usually be lower so you can use the difference between it and your fixed monthly debt payment to start building an emergency fund.
Cons
You will be trading unsecured debt for secured debt putting your home at risk. If you miss even one payment you could lose your home, whereas if you left it as credit card debt you would still have a place to live.
You could end up paying a lot of money in fees such as closing costs and appraisal fees. Make sure you shop around to find the best deal.
The entire loan must be repaid before you can sell your house.
Personal Loan
Because of the potential effects of high credit card debt on your credit rating it may be difficult to qualify for an unsecured personal loan with a decent interest rate. If your credit rating is good you may qualify for a rate in the low-teens, but if it's poor you may end up paying around 20 percent. Shop around at a variety of financial institutions including credit unions to compare the cost of fees and interest. And be aware that generally the extra products they try to sell aren't worth the cost you'll pay.
Pros
Can get good rates, especially if you are a member of a credit union and have good credit.
Unsecured so you don't have to worry about losing your home.
Cons
Your credit rating could drop further because of credit inquiries, closing old accounts, and opening new accounts.
Additional fees.
Now you've got some tools under your belt to help dig your way out of credit card debt. You can also browse our http://www.cardratings.com/crinfofre.html Articles Section for more information about credit cards and debt. Good luck in your quest to be debt free.
Amy L. Cooper-Arnold has been a staff writer for CardRatings.com since 2004. Her articles have been republished by respected publications throughout the country, including Young Money Magazine, E/The Environmental Magazine and About.com. Amy recently graduated with honors from Austin Peay Univ. and is currently taking graduate-level classes.
CardRatings.com is the most comprehensive source for http://www.cardratings.com comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.
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Debt Consolidation - Finance Options
Do you feel you are surrounded by debts on all sides and declaring bankruptcy is your only way out? Well, think again! There are several types of financing available that can help you get out of your financial crunch.
You can choose either of the following:
- Credit Counselling
- Debt Negotiation
- Secured Debt Consolidation Loans
- Unsecured Debt Consolidation Loans
Credit Counselling:
If you can't figure out how to consolidate your debts, then you may consider the option of consulting a credit counsellor. A credit counsellor can give you an unbiased opinion of about your financial position. He can help you chalk out a debt management plan and also give you financial goals to achieve.
Debt Consolidation programs:
In this programs you approach a third-party agency, which in turn negotiates, with your creditors for a small fee. You pay this agency a certain amount every month. The agency then settles all your debts from this amount.
Secured Debt Consolidation Loans:
As the name suggests, a Secured Debt Consolidation Loan can be secured by pledging some form of collateral. A house is the most common form of collateral offered, although you can offer other assets like a commercial property, stocks etc. This loan can be procured on reasonable interest rates. The debt to equity ratio decided the amount that can be lent to you in the form of a secured debt consolidation loan.
Unsecured Debt Consolidation Loans:
As opposed to secured loans, Unsecured Debt Consolidation Loans do not necessitate collateral. In other words, no physical assets except the borrower's word back an unsecured debt consolidation loan. The absence of security is the major reason behind lenders levying high interest rates on unsecured debt consolidation loans. This Loan operates in two ways:
- Lowers the interest rate as compared to what you are currently paying. - Or lowers your monthly payments by extending your repayment period. But in this scenario you end up paying more in interest charges.
Get rid of those credit card bills:
Credit cards generally carry a very high rate of interest. To top it all, if you miss a payment on your credit cards, you can end up with an impossibly large debt with you. Now you can exchange all those outstanding bills with a single low interest loan.
Approach a lender:
Nowadays, availing an unsecured debt consolidation loan is not an arduous task. You no longer have to visit the lenders personally to negotiate a deal with them. You can easily receive free quotes by applying online. Doing so also gives you a chance to compare different offers and then select the one that most befits your circumstances. Before lending a loan, the lenders conduct a thorough background check giving due stress to your credit record.
Start paying off:
Once you get your loan sanctioned, start paying off your pending loans. Start with the one that imposes the highest interest rate and then take it from there. You now will have to worry about paying just one loan rather than several loans at the same time.
Although, credit cards are also considered a finance option for debt consolidation, yet due to the high interest that they incur they are not advised. However, unsecured debt consolidation loans are most popular because they do not tie your assets to any sort of obligations.
The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his masters in Business Administration and is currently assisting http://www.Adverse-credit-debt-consolidation.co.uk as a finance specialist.
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1. Credit repair agency - How can they help
2. Debt Help - Using Online Debt Consolidation Services
3. Simple ways to get out of debt
4. Consolidate Credit Card Debt
5. Debt collection and judgements
6. Tips to Get Out Of Debt
7. Debt specialist
8. Bill Consolidation
9. Cheap Debt Consolidation Loans
10. Online debt management
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Credit Card Consolidation
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