credit card debt consolidation loan

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credit card debt consolidation loan

If credit card debt is causing you problems, debt consolidation could be the solution. Find out how to lower interest rates and reduce monthly payments while eliminating your debt.

Debt consolidation is combining several unsecured debts — credit cards, medical bills, personal loans, payday loans, etc. — into one bill. Instead of having to write checks to 5–10 creditors every month, you consolidate credit bills into one payment, and write one check. This helps eliminate mistakes that result in finances charges like late payments.

Note: Debt consolidation is commonly referred to as credit consolidation. There are three major types of debt consolidation: Debt Management Plans, Debt Consolidation Loans and Debt Settlement. These are not quick fixes, but rather long-term financial strategies to help you get out of debt. When done correctly, debt consolidation can:

  • Lower your interest rates
  • Lower your monthly payments
  • Protect your credit score
  • Help you get out of debt faster

Making the decision to consolidate debt is the first step. Ignoring your debts will not make them go away; it will make your problems worse. The sooner you get help with your credit card debt and make a plan to repay, negotiate, or consolidate them, the sooner you’ll be living a life free of debt.

A debt management plan or debt settlement should be your top options for consolidating your credit card debt, but alternatives include obtaining a debt consolidation loan, borrowing from your retirement funds or the equity in your home, and consolidating your student loans. While you can't consolidate federal student loans with other debts, including private school loans, lending institutions can consolidate private education loans with other sources of debt.

Financial advisors tend to lean away from turning unsecured debt into secured debt, so utilizing home equity is often not considered the best option. You risk losing some or all of the assets you used to secure the debt. Similarly, you should explore all other options before choosing to withdraw money from tax-free accounts you set up for your retirement.

Debt consolidation works by combining multiple debts into one account and making a single, on-time monthly payment until all the debt is eliminated. Debt management plans, debt consolidation loans and debt settlement programs are the primary ways to consolidate debt, but there are several other options available (credit card balance transfers, home equity loans, personal loans, online lenders, etc.), depending on how desperate your situation is.

What Is The Best Way to Consolidate Debt?

How much money you owe and your available resources dictate the best option for consolidating debt.

If your credit card debt is over $5,000, a debt management plan or debt consolidation loan are very good choices. Both plans are based on reducing interest rate paid on the debt, thus making it easier to afford monthly payments. The difference is that there is no loan involved in a debt management plan.

If your credit card debt has ballooned to an unmanageable figure - a number so high that you can barely afford the minimum monthly payments - debt management and a debt consolidation loan are still in the mix, but it would be wise to add debt settlement. If you own a home, a home equity loan also is an option.

If your credit card balance is under $5,000 - and you're committed to pushing it down to zero - a zero-percent interest credit card balance transfer would be another choice. However, those cards usually go to customers with very high credit scores, charge a 3%-5% balance transfer fee and have an introductory period lasting 12-18 months before regular interest rates apply.

Most financial experts agree that a Debt Management Plan (DMP) is the preferred method of debt consolidation. The most-recommended DMPs are run by non-profit organizations. They start with a credit counseling session to help determine how much money you can afford to pay creditors each month. The non-profit agency can help you get a lower interest rate from creditors and reduce or waive late fees to help make your monthly payment affordable. You send one payment to the agency running the DMP and they split it among all your creditors. Utilizing a debt management plan could affect your credit score. However, at the end of the 3-to-5 year process, you should be debt free, which definitely improves your score.

A Debt Consolidation Loan (DCL) allows you to make one payment to one lender in place of multiple payments to multiple creditors. A debt consolidation loan should have a fixed interest rate that is lower than what you were paying, which reduce your monthly payments and make it easier to repay the debts. There are several types of DCLs, including home equity loans, zero-interest balance transfers on credit cards, personal loans, and consolidating student loans. It is a popular way to bundle a variety of bills into one payment that makes it easier to track your finances. There are some drawbacks — you could face a longer repayment period before you finish paying off the debt — but it’s definitely worth investigating.

How to Get the Best Consolidation Loan

Credit unions typically offer the best rates for debt consolidation loans because they are nonprofit organizations and are owned by their members.

If you have a good relationship with your local bank, that is another choice, but banks are for-profit companies who rely heavily on credit scores to set their interest rates. At the very least, you should compare their rates to credit unions before making a decision.

If you have bad credit and aren't successful with credit unions or banks, online lenders could be a better place to borrow. Many online lenders are flexible with their qualifications as long as you are willing to pay a higher interest rate.

The key is to know how to consolidate your bills. Start by listing each of the debts you intend to consolidate - credit card, phone, medical bills, utilities, etc. - and what the monthly payment and interest rates are on those bills. It also helps to know your credit score.

Once you have this information, make sure to compare lender's rates, fees and payoff period before making a decision. A consolidation loan should reduce your interest rate, lower your monthly payment, and give you a practical way to eliminate debt.

How to Consolidate Credit Card Debt on Your Own

If you have a very good credit score (700 or above), the best way to consolidate credit card debt is to apply for a 0% interest balance transfer credit card. The 0% interest is an introductory rate that usually lasts for 6–18 months. All payments made during that time will go toward reducing your balance. When the introductory rate ends, interest rates jump to 13–27% on the remaining balance. Be aware, however, that balance transfer cards often charge a transfer fee (usually 3%), and some even have annual fees.

Another DIY way to consolidate your credit card debt would be to stop using all your cards and pay using cash instead. This can allow you to set aside a portion of your income each month to pay down balances for each card, one at a time. When you have paid off all the cards, choose one and be responsible with how you use it.

Bill consolidation is an option to eliminate debt by combining all your bills and paying them off with one loan. With bill consolidation, you make only one monthly payment — a good idea for when you have five, or maybe even 10 separate payments for credit cards, utilities, phone service, etc. If you consolidate all bills into one, the single payment should be at a lower interest rate and reduced monthly payment. Any savings could be used to start an emergency fund to help prevent a future financial crisis.

How Can I Consolidate My Bills?

Debt and bill consolidation takes patience, persistence and some organizational skills. You must start by gathering all your bills for things like medical, credit card, utilities, cell phones. Add the total amount owed on the unsecured debt. The next step is to determine how much you can afford to pay on a monthly basis, while still having enough to pay basics such as rent, food and transportation.

When you have that number, decide whether a personal loan, debt management program or debt settlement gives you the best chance to eliminate the debt. Understand that this process normally takes between three to five years. There are no easy fixes with debt consolidation.

Should You Consider Debt Consolidation?

Debt consolidation is an appealing way to simplify your bill paying responsibilities and eliminate debt, but there also is a risk that things could get worse if you don't choose the appropriate method and stay committed to the process.

The three major methods of debt consolidation - debt management, a debt consolidation loan and debt settlement - each require time to complete and a behavior change that makes paying off debt more important than accumulating more of it.

For example, a debt management program can dramatically reduce interest rates you pay on credit card debt and eliminate it in 3-5 years. However, if you fall behind on the expected monthly payments, the creditors who granted those major concessions, can revoke them immediately and you are in trouble again.

If you go with a secured debt consolidation loan using your home or car as collateral, the lender should offer an interest rate considerably better than what you're paying on credit card debt. But again, failure to make on-time payments could mean losing the home or car, which obviously makes you worse off than before.

If you decide to use debt settlement, you might reduce your debt by as much as 50%, but your credit score will take a severe hit that will last seven years. That could make it difficult to get a loan for a car or home in that time.

For debt consolidation to work, you must calculate how many payments it will take to eliminate the debt and how much interest is included in those payments. Compare that number to what you would pay under your current plan.

If you are not really committed to making on-time payments and changing the habits that got you into financial trouble, the cost and time for debt consolidation may make the situation worse.

How does a debt management program compare with a debt consolidation loan?

The major difference is you do not take out a loan for a debt management program. Both are set up to pay off debts in a 3-to-5 year time frame. A debt management program is designed to eliminate debt by educating the consumer to change their spending habits and working with creditors to reduce the interest rate and fees associated with the debt. In a debt consolidation loan, the consumer borrows enough money from a bank or credit union to pay off unsecured debts. The consumer must repay that loan and whatever fees are associated with it.

What is debt consolidation refinancing?

It means including other debts in a refinancing of your home. If you have $10,000 in credit card debt and owe $90,000 on your home, you would refinance the home for $100,000 and use $10,000 of that money to do a one-time payoff of your credit card debt. This is only a valuable if you have equity in your home (market value is higher than mortgage balance) and you receive a lower interest rate and monthly payment on your new mortgage.

What type of loans can I consolidate?

Any unsecured debt, which includes credit cards, medical bills or student loans.

Any unsecured debt, which includes credit cards, medical bills or student loans.

Depending on the amount owed, the best consolidation loans are credit card balance transfers, personal loans, home equity loans and an unsecured debt consolidation loan. A good-to-excellent credit score is needed for credit card balance transfers. Peer-to-peer online lending has become a good outlet for personal loans. A home equity loan is a secured loan, which means better interest rates, but you are in danger of losing your home if you miss payments. An unsecured debt consolidation loan means not risking assets, but you will pay a higher interest rate and possibly receive a shorter repayment period.

What Does Debt Consolidation Do Your Credit?

In most cases, your credit score will go down with debt consolidation, but how long it stays down is really up to you. The two major factors are a) which debt consolidation program you use; and b) how committed are you to making on-time payments?

If you choose a debt management program, for example, your credit score will go down for a short period of time because you are asked to stop using credit cards. However, if you make on-time payments in a DMP, your score will recover, and probably improve, in six months.

If you choose a debt consolidation loan, your poor payment history already has dinged your credit score, but paying off all those debts with a new loan, should improve your score immediately. Again, making on-time payments on the loan will continue to improve your score over time.

Debt settlement is a no-win choice from the credit score standpoint. You score will suffer immediately because debt settlement companies request that you send payments to them and not to your creditors. That's a big problem. So is the fact that a debt settlement stays on your credit report as a negative consequence for seven years.

What are the best loans for debt consolidation?

Depending on the amount owed, the best consolidation loans are credit card balance transfers, personal loans, home equity loans and an unsecured debt consolidation loan. A good-to-excellent credit score is needed for credit card balance transfers. Peer-to-peer online lending has become a good outlet for personal loans. A home equity loan is a secured loan, which means better interest rates, but you are in danger of losing your home if you miss payments. An unsecured debt consolidation loan means not risking assets, but you will pay a higher interest rate and possibly receive a shorter repayment period.

When is debt consolidation the right option?

When the monthly payment and interest rate on the consolidation loan are lower than the what you were paying every month and the payoff for eliminating debt comes within five years.

A debt consolidation loan only works if you are able to reduce the interest rate and monthly payment you make on your bills and change your spending habits. The loan won’t work if you continue spending freely, especially with credit cards.

If you are overwhelmed with unsecured debt (e.g. credit card bills, personal loans, accounts in collection), and can’t keep up with the high interest rates and payment penalties that normally accompany those obligations, debt consolidation is a viable debt relief option. It allows you to focus on making one monthly payment, ideally at a lower interest rate. However, you need to be highly-motivated to eliminate debt and disciplined enough to stay on a program that could take 3–5 years before you are debt-free.

How do I consolidate debt and pay it off?

The first step is to list the amount owed on your monthly unsecured bills. Add the bills and determine how much you can afford to pay each month on them. Your goal should be to eliminate debt in a 3-to-5 year window. Reach out to a lender and ask what their payment terms – interest rate, monthly payment and number of years to pay it off – would be for a debt consolidation loan. Compare the two costs and make a choice you are comfortable with.

It can be if you don’t change the habits that caused your debt. If you continue to overspend with credit cards or take out more loans you can’t afford, rolling them into a debt consolidation loan will not help.

Are debt consolidation loans taxable?

The IRS does not tax a debt consolidation loan. More importantly, it does not allow you to deduct interest on a debt consolidation loan unless you put up collateral, such as a house or car.

Who qualifies for debt consolidation loans?

Anyone with a good credit score could qualify for a debt consolidation loan. If you do not have a good credit score, the interest rate charged and fees associated with the loan, could make it cost more than paying off the debt on your own.

Does debt consolidation work on a limited income?

Debt consolidation loans are difficult for people on a limited income. You will need a good credit score and sufficient monthly income to convince a lender that you can afford payments on the loan. A better choice might be to consult a nonprofit credit counselor and see if you are better served with a debt management program.

What do debt consolidation companies do?

Debt consolidation is a term applied to several branches of debt relief. Some companies offer credit counseling and debt management programs. Other debt consolidation companies do debt settlement. Banks and credit unions do debt consolidation loans. Each has benefits/drawbacks, depending on the specifics of your situation.

Which debt consolidation plan is right for me?

There are so many choices available that it is impossible to single out one. The Federal Trade Commission recommends contacting a non-profit credit counseling agency to determine which debt consolidation plan best suits your needs. The credit counselors educate consumers about debt and offer options to eliminate it. Credit counselors are available for over-the-phone or in-person interviews, and their service is usually free.

Can I consolidate my debt without a loan?

Yes. A debt management program (DMP) is designed to eliminate debt without the consumer taking on a loan. A credit counseling agency takes a look at your monthly income and works with creditors to lower interest rates and possibly eliminate some fees. The two sides agree on a payment plan that fits your budget. This is not a quick fix. DMPs normally take 3-5 years, but by the end, you eliminate debt without taking on another loan.

Do lenders perceive debt consolidation negatively?

Most lenders see debt consolidation as a way to pay off obligations. The alternative is bankruptcy, in which case the unsecured debts go unpaid and the secured debts (home or auto) have to be foreclosed or repossessed. Lenders don’t like either of those choices. You may see some negative impact early in a debt consolidation program, but if you make steady, on-time payments, your credit history, credit score and appeal to lenders will all increase over time.

Debt Consolidation vs. Debt Settlement

These two repayment methods are often confused with each other, but they are vastly different.

Debt settlement companies promise to negotiate a lump-sum payment with each one of your creditors for less than what you actually owe. While this sounds ideal, there are drawbacks. Many creditors refuse to deal with debt settlement companies and debt settlements have a huge negative impact on your credit score.

Debt consolidation means taking out a single loan to pay off several unsecured debts. You make one payment to the lender each month, instead of multiple payments to multiple lenders. Debt consolidation has a positive impact on your credit score as long as you don’t miss any payments.

Debt settlement companies, on the other hand, ask clients to stop paying creditors and instead send a monthly check to the settlement company that is deposited in an escrow account. When the account reaches a specific dollar goal — this sometimes takes as long as 36 months – the settlement company steps in and makes its offer to the creditor. The creditors are not bound to accept the offer. Late fees and interest payments also accumulate during this time, making the amount owed much larger.

If you choose to use a debt settlement company, you should not pay any fees until the debt has been settled. Be sure they put in writing how much you pay in fees and how long the process will take. Remember that creditors can refuse to deal with settlement companies.

If you choose a debt consolidation company, be sure to get their fees and interest charges in writing.

Will debt consolidation lower your monthly payment or save money on interest? Enter the terms on a debt consolidation loan, then enter your current terms for each individual debt. The debt consolidation calculator will calculate the monthly payment and total interest for your debts with and without a debt consolidation loan.

Credit Card Debt Consolidation: Tips

We often get asked to break down the top 3 tips to the credit card debt consolidation programs. Since this is becoming a commonly asked question, we felt compelled to explain these three easy tips here on our website. As always, it's recommended to keep these tips handy to ensure a successful consolidation program. By utilizing these tips, consumers will often find ways to further benefit from these programs when repaying debt.

The first tip to credit card consolidation would be to capitalize on the reduction of minimum payments. Many consumers often find themselves making minimum payments only to see that the balances go no where. When entering a consolidation program, it's never a good idea to pay just the minimum payment even if the payment amount gets reduced. When entering these programs, it's often best to try and find a way to double up on the minimum payments. When consumers do this, they put a big percentage of the additional payments they make towards the principal balance owed. When consumers make just the minimum payments, a good part of it goes towards compound interest and other finance charges. Although making more than the minimum payment may seem like common sense, it's an excellent tip to reducing credit card debt when enrolled in the program.

Another common tip to further benefit from the credit card consolidation programs, is to try and find a way to capitalize on the reduced interest rates. By default, when an interest rate is lowered they often receive a lower minimum payment. If it's possible, it's always advised to focus heavily on tip # 1. But given that option is not feasible, try and see if the creditor with the highest balance will allow you to transfer the balance owed to one of your existing accounts with the lowest interest rate. By doing this, consumers will see more go towards the balances as opposed to finance charges. The key point to this tip is to try and secure your balances only on the open accounts with the lowest interest rates.

The third tip when entering this program is to setup your payment as soon as possible. For sake of argument, many consumers will approach a debt relief company and request that the payment is setup weeks or even a month in advance. When entering a debt management plan, it's important to try and make the payment as soon as possible. Setting the payment up weeks in advance, will result in the consumer falling behind. Although a DMP will work to re-age the accounts to current after a few consecutive payments, it's always advised to make the payment as soon as possible to avoid falling behind. This tip is never really explained when going through the quoting process as the companies are just eager to set the client up and don't want to deal with stressing out the potential client. So from the day the quoting and enrollment process takes place, it's advised to not exceed two weeks when setting up your first draft.

About the credit card debt consolidation programs

The credit card consolidation programs were created to help consumers from credit card debt, without the need of filing for bankruptcy. The creditors are notoriously known for taking advantage of consumers by using finance charges and high interest rates. It's a proven fact that most consumers will max out their credit cards within the first 30 days of having the credit card activated. When consumers make minimum payments on these high balance cards, they soon realize that the balances do not go down once the minimum payments are made. As the consumers try and make minimum payments with these high interest rates and minimum payments, they find that paying off the debt will be virtually impossible. Because of this, it's best to look into your credit card debt relief options, to avoid making pointless minimum payments. As always, it's a good idea to educate yourself on the various types of credit card consolidation. By doing this, consumers will have a better understanding on how these programs differ from one another and how they can live a debt free life.

The definition of credit card debt consolidation, would be best summed up by consolidating all unsecured debt into one lump sum. The client will then have the option to have one monthly payment that he or she can setup according to their financial situation. Each month when this monthly payment is made, that payment is then redirected to the creditors (don't confuse the consolidation program for a loan). Of all debt relief programs available today, credit card debt consolidation is by far most popular. The program works by reducing high interest rates, minimum payments while allowing the consumer to have one monthly payment regardless of how many creditors they have. According to FICO when searching for what's in your credit score, credit counseling will not harm the consumers credit.

Why consumers need credit card debt consolidation

It's important for consumers to understand why so many seek the credit card debt consolidation programs. According to statistics on credit card debt, most consumers will come close to the allowed credit card limit in the first thirty days of activating the credit card. Furthermore, most consumers pay only the minimum required payment when the bill comes due. Because of this, the minimum payments the consumer now makes goes towards finance charges and not the actual balances owed. Since more than ninety percent of consumers fit the above criteria, it's only a matter of time until they give up and file bankruptcy. This is why consumers need a credit card consolidation program.

Since so many consumers were filing, the creditors created programs such as debt management and even debt settlement. This allows consumers to find alternative ways to repaying debt without the need of filing for bankruptcy (which in turn, gives the creditors nothing). When paying the debt directly with high annual percentage rates and high minimum payments, the consumer literally gets no where when wanting to repay the debt owed. The consumers who do this, often wake up years down the road only to see that the balances remain the same to what they once were. In short, this would explain why this program was created and why consumers need it.

Consumers need to come to the understanding of why this type of consolidation is needed, it's important to understand how creditors try and push introductory interest rates in order to obtain lifelong customers. When consumers start to feel as of the balances are not going down, that's when he or she should consider consolidation as a possible program to consolidate debt.

Top 3 programs for credit card debt consolidation

Consumers are often confused on which path to pursue when it comes to credit card debt. Because of this, our company will break down the top 3 ways on how to consolidate debt. When considering a way to repay creditors, it's important to know which programs to pursue and which to avoid. We hope these three tips will help you when making your decision.

Program # 1: Credit Card Debt Consolidation Program

The most common and most respectable way to consolidate credit card debt, is through a debt management program. Better known as a DMP, consumers will be able to consolidate credit card debt through a non-profit or for-profit company. By doing this, the consumer will remain current with the credit cards while the interest rates are reduced to something more realistic. Creditors are less willing to work with the consumers directly, but are more lenient towards debt management companies. Also known as credit counseling, this program will not harm the credit score and works only to reduce the minimum payments, APRs while in turn keeping the consumer current.

Program # 2: Debt Settlement Program

The second most popular program when considering credit card debt consolidation, would be debt settlement. This program works by reducing the balance. Unlike consolidation that works to only reduce the minimum payments and interest rates, this program will try and have the actual balance reduced. When considering this route, it's important to understand that no company will ever make a guarantee on the outcome of this program. The average settlement tends to be at around fifty percent, but can range between twenty and sixty. When considering this type of program, make sure that the TSR laws implemented by the FTC are being followed.

Program # 3: Consolidation loans

This is a common solution that consumers pursue, but our recommendation is to simply avoid it. When trying to get a credit card consolidation loan, the issuing banks will try and require some sort of collateral. This request will usually be done through that of a home, or some other sort of physical property. We tend to tell consumers that a credit card consolidation loan, is nothing more than a temporary band-aid when considering debt relief. It doesn't really provide credit card debt help as it's only a temporary fix. Although it provides the consumer with one minimum payment, it requires security through collateral and often has similar fees and charges that the original credit card debt had. When consolidating credit card debt, it's always advised to consider these programs in the order in which they were listed.

Related articles on credit consolidation

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Options for Debt Consolidation

You have several options when it comes Debt Consolidation. Make sure you know which one is perfect for you.

Knowing the right things to consider when finding the right Debt Consolidation Lender is important.

We have some helpful reminders for those who are considering debt consolidation.

We’re providing you with the steps you need to take in order to start the Debt Consolidation process.

Choosing the Best Debt Consolidation Loans

To create the best list of Debt Consolidation partners for you, we’ve taken the following factors into account:

Before anything else, you first need to need to know if you qualify for the loan. Most lenders have a minimum FICO score – this represents their risk appetite. Even if you find what you believe to be the best company to get a debt consolidation loan from, you will have to look for other options if you do not meet their requirements. Therefore, if you have a relatively low FICO score, be realistic and expect higher APRs. On the other end, if you have an excellent FICO score, your options will be a lot broader.

Annual percentage rates (APR) and monthly payments

If you are looking at estimated APR and monthly payments, you should already have narrowed down the list of potential lenders on where you qualify. Of course, you want to get the best deal out there. However, understand that this is limited by certain factors, largely by your FICO score. What you will have now is a range of your potential interest rates you can accrue based on the information you gathered. Assuming you have the same loan term, the higher the interest rate is, the higher your monthly payments will be.

Aside from interest, lending institutions earn money through various fees. There are different types of fees that a lender can impose on clients, but the most common one is a prepayment fee. Your best debt consolidation loans will not come with fees unless they are very minimal. Know the fees associated with your loan. Otherwise you might be surprised when your bill comes.

If your credit rating is impeccable and you have found the perfect debt consolidation loan, you may find their payment process is indirect and very democratic. Is this still a viable option? You should always consider the accessibility and convenience of your lender. There are other concerns in your life besides settling your debt. If your chosen debt consolidation loan becomes a burden instead of making your life easier, you are better off with another creditor.

Lastly, assuming that you are no expert when it comes to how these things are handled, there must be qualified and competent customer representatives to bridge the knowledge gap for you. Even if you feel you are comfortable with a lender, you still must be certain that your concerns are addressed accurately in a timely manner. Especially when it comes to fees, there must be clear communication between the two parties. Without that, you might unknowingly hold wrong expectations and get very frustrated later on.

The decision must not be on your financial concerns alone. In the end, the loan is just as good as where you source it. Your choice must be a balance of all these factors, with some factors weighing more heavily than the others depending on your priorities.

Debt Consolidation with Personal Loans

Many individuals accumulate debt with various organizations. This can include things like student loans, credit cards, business loans, mortgages, and many other lending products.

One of the best ways to simplify this complex web of bills is with a debt consolidation loan. A debt consolidation loan is when you are given a loan to pay off other debts. The result is that your bills are consolidated into one place so you don’t have to worry about tracking multiple different payments.

You pay a fixed payment to your lender for a period of two to five years on average. Most consolidation loans are offered at a fixed interest rate, which gives borrowers the stability and predictability they might lack in their current financial arrangements.

Are you a good candidate for Debt Consolidation?

You might be a good candidate for a debt consolidation loan if:

  • You can repay your consolidation loan without accruing additional debt.
  • You have the right credit to obtain a loan at a better interest rate than your current debt.
  • You are having a hard time keeping up with multiple different payment schedules.

However, as with all financial products, there are a few things you should pay attention to:

  • Make sure you are aware of the fee the consolidation lender will charge
  • Understand what support you have access to, for example: will the lender pay your creditors directly?
  • Check if there is an advantage to having a co-signer on your loan.

Consolidation Options: Loans vs. Credit Cards

With the right credit, you can get a card that has an introductory 0% interest period. Transferring your current balances to this new card can save you money.

Something to consider, though, is that the introductory rate will eventually expire. If you haven’t paid off the balance by that point you could be in for a surprise when the bill comes due. The interest rate on credit cards is almost always higher than the interest rate on a personal loan, so if something comes up and you can’t pay off the balance on time you’ll face a large expense.

There are some distinct advantages to personal loans when compared to credit cards for debt consolidation.

The first advantages have to do with the structure of a personal loan. The fixed payments provide predictability on when you will be done paying your loan, and the interest rates are usually much lower for personal debt consolidation loans than they are for credit cards. In fact, because loans are issued through the banks, there are limits on how high of an interest rate they can have. For example, federal credit unions are typically limited to 18% per annum.

Another advantage is the way that the debt is treated on your credit report. Credit cards appear as something called revolving debt, which has a greater impact on your score than installment debt, which is how a loan is categorized. This has to do with the fact that credit cards have a credit limit, and using too much of your credit limit can negatively impact your score. These factors don’t apply to installment credit.

There are a number of ways that you can get personal debt consolidation loan, but one of the most common is to use online services to compare different lenders. Each lender has different policies and procedures, so it is important to understand how to compare different personal debt consolidation loan lenders.

Credit Card Debt Consolidation

Financial Advisor, DCL

Credit card debts, while not requiring any collateral, affect the financial wellbeing of many Americans today. Since lending institutions have relaxed their policies, a lot have been taking advantage of easy access to money.

This, coupled with relatively low interest rates compared to the 2008 financial crisis, has resulted to a continuous increase in credit card debts. In fact, it is expected to continue on this trend for the next years.

What this means that most Americans, no matter how well-off they seem to be, have debts they are yet to settle.

Why do Americans have so much credit card debt?

Acknowledging that there are a lot of things beyond our control, credit card debts are not only a result of mismanagement. Here, we list the most common ways a person falls into debt and what you can do to avoid or address them.

Despite being aware of the unpredictability of life, statistics show that 69 percent of Americans have a savings account balance of less than $1,000. What is more alarming is that 34% of those do not have any savings at all. This exposes them to sudden changes such as loss of a job and other emergencies.

Some of these people wake up every day knowing they are in great shape financially, then broke the next day. Unable to augment their income as quickly as they came across an emergency, they have to resort to credit cards.

That is only the beginning for them. Even after dealing with whatever crisis that came, a big debt that has already accumulated interests still exists. For tragedies not to hit you too hard, save at least three months’ worth of your budget.

Poor Money Management Skills

Money as a limited resource must be managed. Unfortunately, a lot of people lack this skill. Living in a very consumerist environment, they are easily enticed by “hot deals” and other forms of marketing. We are pushed to think that we can afford things we really cannot, and when the compulsion becomes too great, we put it on the credit card “just this once.”

A month later, another deal you cannot miss comes, and so on until you are stuck with a large debt. No matter how much you earn, you can still fall into credit card debt. The only requirement is you spend more than you make.

Cost of Living Increases at a Faster Rate than Income

The growth of income has failed to catch up with the cost of living, leaving most Americans on a tighter budget. If you are living paycheck to paycheck, even the slightest increase in the cost of living will affect you.

This is especially true for growing families. If you’re still earning the same amount as when you were single and you now have a wife and two children, it would obviously be difficult to pay all the necessities and bills while giving your family a semblance of normal life. Luxuries are out of the question. The household income would be devoted to food, clothing, paying off mortgages and a car.

Sometimes, even cost cutting and a sideline are not enough to make ends meet. Depending on credit cards makes sense, in this case.

The problems are compounded when unexpected expenses arrive. When a family member gets sick and there’s no health insurance, or only a part of it is covered, the head of the family will be forced to borrow money in the form of a loan or take out a cash advance from his or her credit card. When the car breaks down and you don’t have money for major repairs or for buying a new one, the most logical solution would be to borrow money and pay it off either immediately after you get your next paycheck or on an instalment basis. Either way, this will upset the family budget, and may cause you to scrimp on the food budget or miss a couple of payments on your car or home.

Unless you own Apple or Windows, the biggest source of your income is probably your job. Especially if you are the sole provider of your family, losing it can cripple you financially.

Having no other earner to contribute in the household budget, paying bills even for your most basic needs like food and shelter can be hard. Some companies offer assistance such as severance pay, but that cannot permanently sustain the whole family.

If you are serving a saturated market, new jobs will be harder to come by. Therefore, to deal with this great a financial impact in your life, credit cards may be your only way out.

Suffering from a fatal disease or a tragic accident doe not only shatter your bones or one of your organs, but their financial health as well.

Even with insurance, medical bills, not to mention the medicine bills, can easily pile up especially when you need to stay in the hospital until you recuperate.

To pay these, you may be left with no choice but to put it all in your credit cards. Given their high interest rates, the total amount you owe will continue to increase even when you are already well.

Depending on how severe your condition is, it is possible that you will not be able to go to work for an inordinate time.

Divorce plays a large role in accumulated debts because it takes both parties from a relatively stable living condition to a totally unpredictable one. To begin with, lawyers are paid by the hour. The longer they agree on a settlement, the higher the fees get.

Aside from that, child support payments as well as new household costs may be too big for one to handle with the paycheck alone. In this situation, there is no choice but to turn to credit cards.

While there is home insurance against theft and fires, there’s no complete insurance coverage for forces of nature, or what they call “Acts of God”. While it doesn’t happen every day, when they do, these natural calamities can damage homes and property can leave people’s lives in shambles. Hurricanes, earthquakes, and other disasters cannot be predicted no matter how advanced science becomes. The recent spate of hurricanes and tornadoes affecting the United States and nearby areas have devastated homes and affected businesses. When these things happen, people who don’t have a lot of savings are forced to borrow money from the government or people they know in order to get back on their feet. Houses need to be repaired, new appliances and furniture need to be bought, while others choose to relocate to a whole new area and build their lives from scratch.

While these situations are considered out of the ordinary, they do happen and leave a deep impact in the lives of people. Natural calamities are things we don’t have any control of, but the more common reasons why people go into debt, are within their control.

The longer you keep a credit card debt, or a payday loan for that matter, the larger the chunk it takes out of your paycheck. Once it affects your spending on basic needs, you might want to start considering your options. If you don’t, you could find yourself having less and less money to spend on bills and necessities. You could also be saddled with interest and this could delay the repayment of your loan even further.

Some of the other signs to look out for when identifying your financial health include the following:

  1. You have a low credit score.
  2. Your credit cards are near their limits.
  3. You are only paying the minimum amount required per month.
  4. You cannot save for an emergency fund.
  5. The interest rates are considerably higher compared to when you first acquired a credit card

There are consequences for failing to meet your responsibilities to the credit card company. By considering credit card consolidation, you can transfer this debt to another loan with lower interest rate and longer payment plans.

Considering Credit Card Consolidation

Credit card consolidation plans can be secured or unsecured, and what you will need depends on how much you owe as well as your credit rating.

For many, this is the smart thing to do as it takes the hassle out of credit card payments while also preventing you from owing even more through accumulated interests.

There are several advantages to consolidating your credit card debts. For one, it means having to pay only one interest rate and one bank. You don’t have to worry about making multiple payments and meeting each and every due date on time. The bank or credit consolidation company will merge all of the amounts you owe from various credit card companies and pay them off. You will end up owing only them. Once you choose to have your debt consolidated, you must be very honest about how much you can afford to pay every month or every payday. The loan consolidation company will help you pay off these debts so you can start fresh.

A Refinance of Your Current Mortgage with Cash Out

Refinancing your current mortgage offers a lot of convenience for people struggling to pay their credit card debts. For one, the interest rate is lower so you can actually save money from refinance.

Along with the life of the term is longer for mortgages, you may end up paying virtually the same amount, depending on how big your cash out is. This is one of its best selling point as it offers something (credit card debts being wiped out) for almost nothing.

While a refinance addresses cash flow, one must not forget that closing costs will be incurred with this option. Amounting to a few thousand dollars, it can be paid upfront or be added to the balance of the loan.

Aside from that, it is also very risky, especially for people with unstable income. Credit card debts are unsecured, meaning creditors will not seize your assets for not paying. However, with refinancing your mortgage, your collateral is on the line.

Failing to practice restriction in unnecessary spending and to complete the payments means losing your home.

Home Equity Line of Credit (HELOC)

Having very valuable assets in your estate may prove useful when faced with high amounts of debt. Unlike your traditional mortgage, home equity line of credit does not give you an amount close to value of your house. It is much smaller.

What will be put on your credit depends on your mortgage. Most of the time, the value of your home is higher due to inflation. The difference is what the creditors award you.

Finance institutions are usually very relaxed on where you can use it. However, if you are already in debt, you should use it to settle the amount you owe to credit card companies.

Good credit is a measure of how trustworthy you are when it comes to paying your debts. This can almost guarantee you a personal loan. However, because there is no required collateral for you to obtain it, the amount that will be granted to you is relatively smaller.

This is a great option if you have been a little short on cash for only a few months, this may be for you. Still, you have to make sure you will have the financial resources for this loan.

Compared to secured debts like mortgage, the interest rate here is relatively higher. Moreover, the life of the loan is much shorter. Thus, if you need a large amount of money, this is not for you.

If you wait too long to address your credit card debt, you may be left with limited options when you finally wake up to reality. The worst case, you will have no choice but to file for bankruptcy.

One of the ways to solution this is by contacting your creditor to renegotiate your payment terms. However, as true as it is most of the time, avoid debt unless completely necessary. Manage your budget, and you may find you may not actually need a credit card at all.

Credit Card Debt Consolidation Loan

Debt consolidation is often misunderstood by many people. The first reason is that it is complicated and has a lot of nuances with numerous moving parts. However, this is not true. Understanding loan consolidation is easy. It is taking one large debt to repay all your smaller loans. People assume that is a complex process but it is not. The second misconception is that people are misinformed and they do not have the right information about the loan. The industry is grappling with a wide array of companies claiming to give lenders the best rates. The main concept of loan consolidation is that we help borrowers access to credit facilities that they would not be able to access in the conventional lending systems. To make it easier for you to understand, we are going to cover all the aspects of debt consolidation.

How Does Debt Consolidation Work?

There are various forms of relief that are available in the market and they do not necessarily qualify as credit consolidation. It is important for you to understand how credit card consolidation works. Combining your advance is a concept where a borrower merges all his or her loans into a single financial obligation. This is easier to manage because you can monitor one loan and it is easier than keeping up several loans with different rates and deadlines. Consolidating means that you will have to worry only a single credit and this is an attractive way to manage and get out of financial woes for people who owe different creditors with varied interest rates. In general, borrowers default their loans because they cannot track them or their interest rates are so high such that they cannot manage to repay them on time. There are many forms of loan merging and you should understand all of them before choosing one.

When Do You Need Credit Consolidation?

Combining your debts is one way of getting out of debt. However, this is not for everyone. How will you know that this is the right time to combine your loans? The answer is simple. Combining your debts will make sense if you have several debts from different creditors and you are looking for a way to clear your debts. Other types of money facilities such as student loans might take some time to combine but you should understand the reason why you want to combine your debt. This kind of loan combination is suitable if you have credit card debt. If you have several credit cards and want to merge the credit on these cards, then this could be the right option for you. Credit card debt is one of the most forms of credits available in the market. If you are not careful on how you spend your credit card finances, then you might end up in a cycle of debt.

Advantages Of Debt Consolidation

Even in situations where you owe money to several creditors, merging your loans may or may not be the right idea for you. It is imperative that you take the time to consider the pros and the cons of the financial direction you want to take. Some of the benefits of merging your debt include:

  • Savings – combining your credit may help you save a lot of money in the long run. In the short term, you can benefit because you will be paying a smaller amount each month and in the long term you would have paid less compared to the total amount of the loan.
  • Simplicity and hassle free – Combining your debts means that you have peace of mind by tracking a single debt, unlike having to keep up with several loans which can be quite difficult to follow. Moreover, you will not have your creditors calling or emailing you because you would have transferred that responsibility to your lender.
  • Helps you overcome debt – When you consolidate your loans into a single payment, it will make it easy for you to repay all your existing debt. This is a feature that you should not underestimate because it could determine your financial future. When you are juggling numerous debts, it can feel like you are not progressing. However, when you combine your credits, any payment is a step towards a credit-free life.

Disadvantages of loan consolidation

Depending on how you react to changes in your finances, combining your finances can be either advantageous or disadvantageous. There are a few disadvantages of consolidating your debt. These include:

  1. Difficult to access – This could be challenging to people with poor credit history. However, this is not the case with us because we connect borrowers, even those with low credit score to lenders who will finance their loans. Lenders in our network do not consider a less than stellar credit score as an impediment to access money lending facilities. However, it is important that you meet all the criteria set forth by your lender.
  2. Consolidating your debt is not a solution but a means to an end. This is true if you have poor planning and do not have a long-term financial plan. Combining the debt will help you clear your loans but it is not a solution to long-term financial woes. You should know what got you into this debt in the first place. Once you know the mistakes you did in the past, you can budget and plan for a better future.

What Is The Difference Between Secured And Unsecured Loan?

Credit consolidation comes in two varieties – secured and unsecured loan. In secured loans, the lender will check your creditworthiness and you will be required to provide a certainty of payment by putting down collateral or asset. Perhaps in this category, many people will fail to access this kind of credit facility because of poor credit score. Your poor financial picture may scare your lender. Secured credit is commonly offered by conventional lending institutions such as banks and other financial facilities. On the other hand, unsecured loans refer to money that the lender advances without any collateral.

It is not a guarantee that when you merge debt you will be in a good financial position. If you do not have a sound financial plan even after we help you combine your credits, you may fall into the same trap again. The most crucial aspect to understand is that combining loans will work if you are ready to change your spending habits and begin saving. Once you have managed your loans, the next thing to understand is how to avoid getting into this cycle again. If you can budget and avoid spending on unnecessary items, then you have a good chance of becoming financially stable and debt free. You can combine your loans and get credit counseling to help you know to manage your finances effectively. A credit counselor will guide you on the right way of using your finances to put your financial future in place. Restructuring the current spending and development of a saving plan are some of the aspects of overcoming financial advance.

We are a trusted company who will connect you to lenders in our network. Lenders in our network understand your needs and will help you overcome debt by giving you loans with suitable payment plans.

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