Credit card consolidation refers to the act of combining the balances of a number of different credit cards into one account. A consumer may decide to tackle their credit cards alone or enlist the help of a credit consolidation service, depending on their situation and level of financial expertise. Credit card consolidation services are services that spefically cater to clients considering consolidation and need help doing so.
Options for Credit Card Consolidation
When a consumer decides to consolidate their credit cards, they have three main options. These easiest option is to obtain a new credit card and then transfer the balances of existing credit cards into this account. This will be the most effective if a consumer can obtain a new credit card that offers a low or 0% introductory interest rate and low balance transfer fees. It is also important to refrain from maxing out the balance of the new credit card or immediately closing the previous accounts, as this will negatively affect a consumer’s credit. The problem with this option is that is requires a consumer to have a good credit score or it will be impossible to obtain a new credit card. Unfortunately, many consumers that consider consolidation are doing so because they are in a poor financial situation and may not have the best credit score.
The second option that consumers have is to take out a person loan. This may be a more realistic option for someone that has a great deal of credit card debt, as it may be difficult to find a credit card with a sufficient credit limit. When obtaining a personal loan, consumers will generally take out a loan for the amount they owe their creditors, and then immediately pay their creditors with the money they receive. However, because personal loans are usually unsecured loans, they will also be difficult to get without a good credit rating.
The last option that a consumer may want to consider is a home equity line. This is similar to a personal loan, as a consumer may obtain an equity line for what they owe and then use the money to pay off their creditors. Additionally, because this is a secured loan, it will be easier to obtain if a consumer has less than perfect credit. However, this option requires that a borrower has built up enough equity in their home, which will obviously be impossible for non-homeowners. Borrowers whose home has significantly decreased in value may also find that this is unrealistic option.
What Are Credit Card Consolidation Services?
When deciding to consolidate your debt, you may need to enlist the help of a credit card consolidation service. These services employ professionals that will walk consumers through the consolidation process, while helping consumers learn how to better manage their finances. Most consumers will not know what consolidation option will work best for their situation or how to get the best deal. These services will help consumers take a close look at their finances, determine what consolidation option will be the most beneficial, and then begin the consolidation process.
The Benefits of Credit Card Consolidation Services
There a number of benefits to credit card consolidation. The first benefit is that consolidating one’s debts makes it much easier to pay one’s bills each month. Instead of making a number of payments, at different times each month, a consumer will only have to worry about one monthly payment. This will not only make it easier to pay one’s bills, but may help consumers avoid accidentally paying bills late, thus avoiding the resulting late fees.
Credit card consolidation will also usually lower a consumer’s monthly bills. When a consumer decides to consolidate their credit card debt onto one account or into a new loan, they often obtain a lower interest rate. This will help lower the amount the individual owes each month, while decreasing the amount of interest a consumer will pay over the life of their loan.
Consolidating one’s debt also helps to eliminate debt. When a consumer only makes the minimum payment on their credit cards each month, the majority of these payments go to pay off the card’s interest, while barely affecting their balance. This leaves consumers paying the same bills every month, but not doing much to reduce the amount that they owe. Consolidating one’s debts makes it easier to pay these debts off, helping a consumer regain control of their finances.
The main benefit of using a credit consolidation service, instead of deciding to consolidate on one’s own, is that these services will contact a client’s creditors and negotiate payment. These professionals may be able to help a client pay off their creditors for less than they owe or work out other beneficial deals that the consumer would not be able to negotiate otherwise.
Should You Consider Contacting a Credit Card Consolidation Service?
While credit card consolidation is greatly beneficial, it can also be fairly expensive, due to balance transfer fees and other fees. Therefore, consolidation should only be considered by those who cannot manage their finances without taking action.
If you find yourself struggling to make your monthly credit card payments each month, you may want to consider contacting a credit consolidation service. However, before you consider consolidating your credit cards, you should first take the time to create a realistic budget. Take a look at your finances and determine where expenses can be reduced or eliminated. If after creating a budget, your finances are still unmanageable, then consolidation may be the best option.
Sources:
Federal Trade Commission: Facts for Consumers
CreditCards.com: Credit Card Consolidation
Getting a Debt Consolidation Loan
How to Find Someone to Help with Your Debt Consolidation
