How to Consolidate Credit Card Debt

This might sound easy but it requires a good amount of calculation to come up with the best budget plan. Make sure that the created budget not only clears the debts but also assists you in living within your means. In short, free up sufficient amount of money to contribute towards reducing the debts.

Here are a few tips that can help you:

1. List the fixed expenses separately: Payments on mortgage, loan, car maintenance, health insurance, food, etc., are a few entities that cost the same every month. So, list them under the category named fixed monthly expenditures.
2. List the variable expenses separately: As the name implies, variable expenses differ every month. Usually, they are majorly luxuries like dining at fine restaurants, gym memberships, hotel reservations, Netflix, and so on. List these under the category named variable monthly expenditures.

Once the fixed and variable expenses are written down separately, the cardholder will be able to comprehend his/her finances better and in which part the spending habits are the most. Try to lessen the variable expenses and contribute that part of the money in clearing the credit card debts.

Decide Which Debts To Clear First

Cardholders with multiple credit cards should try to pay off one debt at a time, starting with the highest. To accomplish this task, follow the step given below:

1. Pay The Debt With The Maximum APR: The debt on a credit card that has the highest APR is the one that is costing you the most. Hence, that has to be cleared first. Pay the most on this card and minimum on the rest. Again, if there is remaining money left, contribute all of it to the high APR card. Once this is done, focus on the next-highest APR credit card.

If you try to reverse the strategy, it can turn out to be overwhelming. Say, for instance, you are trying to pay off the debt with the lowest balance. As soon as you clear one card, undeniably, your commitment and confidence increases. But it will eventually go down and you might give up when you try to clear the cards with high APRs.

Understand The Consolidation Options

Though there are multiple smart and safe ways to consolidate credit card debt, the important thing is to first understand them properly before opting for any of those options. Learn what trick works for your current credit card situation and in doing so, how will it affect my credit score.

A few strategies appear to be affordable but there might be hidden charges, which you might not be aware of. Hence, the decision to do a credit card debt consolidation might turn out to be shattering at times.

Here are a few suggestions to help you:

1. A new credit card with low-interest rate: This option is an excellent way to consolidate credit card debt. But before going with this option, the primary eligibility criterion is to have a good credit score. Once you find the right credit card that offers a low-interest rate, transfer all the credit card balances with a higher interest rate to a single credit card with a low APR. This will help you save money on the monthly finances while paying off the debts. Take into consideration the balance transfer fees and the new interest rate and calculate if it is a cheaper option.
2. Apply for a personal loan: If you feel that a new credit card won't work for your circumstance, then try getting a personal loan. Typically, banks charge SI (Simple Interest) on the loan with a tenure of 3-5 years. You can consolidate the credit card debts to a personal loan so that you can have a plan on how to clear the debts on the old cards.
3. Contact a credit agency: If you are sure that you will not be able to handle those debts on your own and no strategy seems to be progressing, then it is the case of a serious debt problem. At such times, it is highly advisable to contact a reputed credit agency so that they not only offer their expertise but also come up with a debt management plan that works the best for your situation. With the proposed plan, the cardholder has to make only one payment every month to the credit agency. The agency, in turn, pays each of your lenders. The best thing about participating in a debt management plan is that lenders might lower their interest rates on the credit card balance. The plan usually lasts from 3 to 5 years.

Do The Calculation

Make a note that the idea of credit card debt consolidation will save money but is not always free. Typically, credit cards might have balance transfer fees. Hence, this has to be calculated before practically getting into the step. You need to ensure that the balance transfer charges do not outweigh the actual benefit of obtaining a low-interest rate on the debt.

Understand these first:

1. Promotional interest rates: Know that these rates are only for a limited period. Although companies offer a zero APR, the promotional period is sure to expire within 12 months. Therefore, it is vital to repay the debts within the given time frame. Else, you might end up losing all the money that you had planned to save.
2. Debt consolidation loan: The same applies for a debt consolidation loan as well. Hence, ask questions about the loan origination fee and ensure that the loan repayment amount meets the planned budget.

Delayed loan repayments or failing to meet any requirement that is agreed with the lender can hurt the credit score to a great extent.

Conclusion of How To Consolidate Credit Card Debt

Whatever credit card debt consolidation method you choose, always do deep research and ask about the fees as well as other hidden charges that have to be paid later. Ask other important questions related to the plan and perform a calculation before getting into the option practically because these factors will play a key role in taking a decision.