Ruchi Gupta

IS CREDIT CARD DEBT CONSOLIDATION RIGHT FOR YOU?

Credit cards offer a very convenient way to make payments. Buying airline tickets, paying your hotel bills, or even purchasing your weekly groceries is easy. However, a significant percentage of credit card users don’t pay the entire balance on their card statements when they receive their monthly bill. According to a recent report, the country’s total credit card debt stands at $927 billion and the average American family owes their card issuer $15,482. If you’re like many Americans and are looking for a way to reduce your credit card debt, you may want to consider debt consolidation.

Already know debt consolidation is right for you?

HOW DEBT CONSOLIDATION WORKS

If you’re considering debt consolidation, there are several options available: Transferring all your dues to one card – you can transfer the balance from all of your current cards to one new card. Of course, if you plan to do this, you should have a good credit score. This new card will carry all your debt, so you will want to make sure that you get the best interest rate possible. If you shop around, you may even be able to get a card that has an interest-free period for the first 12 or 18 months. But remember that you may have to pay a balance transfer fee.

Another good option is a personal loan. If you don’t want yet another credit card, a personal loan offers another way out. Use the loan proceeds to pay off the dues on all your cards. Subsequently, you will have to repay the personal loan. It is important that you don’t default on the repayments towards your new loan. If you do this, it could impact your credit score and make it difficult to borrow in future.

Finally, you might want to consider a debt management service. If your total dues are just too high and you can’t manage your repayments despite your best efforts, it may be a good idea to speak with a credit counseling agency about a debt management plan. Once this plan is in place, you will be required to make a regular monthly payment to the agency and not to the credit card companies. The debt management agency will pay your creditors on your behalf. It may also be able to negotiate a lower rate of interest for you.

SHOULD YOU CONSOLIDATE YOUR CREDIT CARD DEBT?

Absolutely, yes. Credit card debt consolidation offers several benefits:

  • You can modify your payment terms to accommodate the level of your income. For example, if you decide to pay off your card dues with a personal loan, you could opt for a longer term. This will lower your monthly repayment instalment.
  • It is possible to lower the rate of interest that you are paying. Credit cards usually carry a high APR. The credit card that you use to consolidate your debt may carry an interest-free period. Even a personal loan will usually be available at a rate that is lower than your cards carry.
  • Your life will be much simpler. Instead of making several payments every month, you will have to remember to make only one payment.

SOME PRECAUTIONS THAT YOU SHOULD TAKE

While there are many advantages to credit card debt consolidation, you need to exercise caution in certain areas. If you pay off all your credit card dues with a personal loan, you will suddenly have a large credit limit available to you. Avoid the temptation to start using your cards again. You may rack up an unmanageable level of debt once again. Starting a credit card debt consolidation program can make you complacent as well. But you need to bear in mind that all you have accomplished is that you have transferred your debts to another lender. You still have to repay the total loan amount. If the consolidation program is to be really effective, you must change your spending habits. When you use your credit cards, you should maintain your debt at a level that you can comfortably repay.

Ready to consolidate your debt today?

References

  1. https://www.nerdwallet.com/blog/average-credit-card-debt-household/
  2. https://www.creditkarma.com/credit-cards/balance-transfer
  3. https://www.lendingtree.com/debt-consolidation/
  4. https://www.nfcc.org/our-services/credit-debt-counseling/debt-management-plan/