Multiple credit card payments can dampen your spirit and handicap your finances. Turning the numerous lines of credit into one big loan, and paying back the sum in fixed installments over a repayment period can often save you much trouble. Think of it this way. Instead of many small payments of varying amounts throughout the month, you just have to make one payment with a flat interest rate to one company. That is what debt consolidation is all about. Ingenious as it is, it does not work for everyone and every situation. You need to weigh the pros and cons of your financial situation to understand if a debt consolidation loan is fitting for you.
The only way to know for sure if a credit card debt consolidation is going to work for you is to approach a credit counseling company. The counselor can weigh your payments, interest rate APRs and your credit scores. Professionals can help you understand what kind of a management plan you need. Nonetheless, people do consolidate their credit card debts on their own. Here’s what you need to know before considering the same as a viable option –
Check your FICO scores for debt consolidation
No company will hand out money to you unless you have a solid history of repayment. Banks and credit unions usually have a strict background check policy and a stringent credit score requirement. In most cases, banks need the applicants to have at least 650 on the FICO score to qualify. Since you are already thinking about credit card consolidation, your credit record must have already suffered. Online organizations are helpful in these situations. You can check out nationaldebtrelief.com to understand the different credit score requirements of loan companies across the US.
Get your free annual credit report from a reputable agency, and once you know where you are, you can shortlist companies that will be suitable for you. Most importantly, consolidating your credit card payments can help you improve your credit score over time.
What are your debt consolidation options?
Debt consolidation is an umbrella term, and it includes many loan options. Several smart ways of consolidating debts exist depending on the type of debt, interest rates, and your payment choices.
Consolidation of credit cards
Credit cards with zero-cost balance transfer and 0% interest are often very lucrative. You will need a fairly decent credit score to get your hands on one. Even qualifying for a 0% credit card for 12 months or 18 months can help you save a lot of cash in interests and APR. If that is not possible, look for reliable credit card companies that are known for offering low-interest credit cards to their customers. Just ensure that the rates are flat and you will be paying a lower amount per month than you are currently paying.
Debt transfer between credit cards is never free. Even when companies claim to provide zero cost transfer, they exact the amount later on in interests. To save yourself the trouble, just try to complete the payment of your costliest card first while using the 0% card for your regular needs. Prioritize your payoffs – pay the maximum amount you can for the credit card that has the highest interest rates.
Unsecured debt consolidation loans
Unsecured loans do not have collaterals. Thus, the loan companies often need to run thorough background checks and analysis of bank records and credit scores before they can sanction a personal loan for debt consolidation payment purposes.
They come with a repayment term of 3 to 5 years. They have lower monthly interest rates and a much smaller APR. To qualify for the dream consolidation loan, you need to have a smooth credit record. Your payment record acts as the security that these companies need to alleviate the risks.
No matter how lucrative a quote you receive from a consolidation loan company, always check with the Better Business Bureau or BBB for their accreditation. Check if they are on the NFCC and FCAA directories. Do not fall for promises of guaranteed credit repair in exchange for hefty upfront fees. A debt consolidation loan should only come with an origination fee and the usual monthly interests along with payments.
Debt management is usually a step that comes before debt consolidation. That is where a counselor tells you about your consolidation options and credit repair alternatives. However, you can save a fortune if you can analyze your finances and start with the debt management process on your own.
To start with the plan, sit down with all your credit card bills. Check the interest rates on each one of them and see how much you are paying for them per month. Several companies including the NFCC offer non-profit credit counseling. As a part of debt management, you can send the money to a non-profit organization, and they will pay the credit companies on your behalf.
You are getting mental peace in exchange for a small fee, while another company, run by trained professionals, takes care of your multiple payments. It is one of the best plans for managing numerous debts, and these usually have a span of 3 to 5 years as well.
Credit card debt consolidation is only a step towards a healthier finance
To realize your dream of a financially secure future, you must accept the fact that credit card debt consolidation is just a step and not the destination. You can feel a sense of relief and joy when a company agrees to manage your debts on your behalf, but you must also realize that you need to pay the company for their services and you need to repay the borrowed sum too.
Debt consolidation loans should ideally lower your monthly payments and provide you a comfortable flat monthly rate. It can also extend the period of repayment. Unless you find a company that is ready to offer you a deal that is good enough, do not compromise. Debts are pressing matters, and so are debt consolidation loans. Go ahead, indulge in some research and compare the rates to find the perfect debt consolidation company.