By Kenneth Long on December 14, 2010
.jpg.aspx?width=75&height=75) A single lower payment and reduced interest will always be preferred to juggling multiple high interest credit card payments. Agreeing to consolidate credit card bills requires careful consideration to ensure that you will be able to stick to a repayment schedule.
The mistake that many people make is they try to take out a consolidation loan. This may be an unsecured loan, balance transfers to a single credit card or a home equity loan. The trouble with this method is that about 70% of the cardholders that take this approach are in much more debt within just two years.
You cannot repay debt by taking on more debt. Imagine a farmer buying a cat to eat the mice, then having to get a dog to chase the cat away. At the end of the day, he is stuck feeding a lot more than he started out with. The same is true with debt.
You have to look at the problem itself and find a way to target that problem directly. The problem is your high interest credit cards. While the monthly payments may be a bit high, very little is going toward the principal balance because of the hugh finance charges that accrue each month.
A debt management program actually goes after the problem directly without supplying more debt. Credit counseling examines your eligibility for benefits that are supplied directly by your existing creditors. You do not need to get another loan.
This program consolidates credit card bills into one monthly payment. There is no guarantee that that payment will be lower than you are currently paying. Most clients do see a decent reduction however. Additionally, commonly received interest rate reductions can actually shift more of your monthly payment away from finance charges, instead hammering away at the principal balance. As your credit card balances drop, an even lower portion of each payment is claimed as interest.
A debt management program really does solve a lot of problems. It is effective at lowering your interest rates, lowering your monthly payments and allowing for a consolidated monthly payment that is easier to track. An automatic monthly bank draft can ensure that you complete your repayment within the program goals, usually within a three to five year period.
Consolidating through balance transfers is a less attractive solution these days due to the increased balance transfer fees charged by most credit card companies. A 4-5% upfront transfer fee negates the savings you thought you would have received.
A Look at Consolidating through Balance Transfers
By Cathy Jones on March 19, 2010
No one can dispute the fact that there are times when a credit card comes in handy. Credit cards have saved my neck many times! I have been able to pay things like doctor visits, dentists, and bills with them when cash was at a minimum.
Now the really bad (for some of us) happens. Those bills start rolling in! While we can keep our good credit rating by just making the minimum payments on all of them every month, it really doesn’t help our bottom line, getting them paid off! It would be to our great advantage to pay them off. I have learned, over the last few years, thanks to a miserly husband, that you never spend on a credit card what you are not prepared to pay off every month!
Assuming you cannot afford to do this every month, you will need to find out, among the ones you have, which credit card has the lowest interest rate. Store credit cards too, have to be added to this mix. Probably the most challenging part of this is next, take all of the cards with the exception of one and cut them up! Yes, cut them up. As simple as this seems, there are many who get to this point of financial change, and don’t follow through with this step. It is very easy to justify keeping more than one card for various reasons. “What about” and “what if” scenarios start popping up! Don’t give in!
It is very important to follow through completely with these steps to be successful. In the long run, the benefits we reap from doing this will be ten times more rewarding than you can being strapped to credit card debt the rest of our lives. I mentioned keeping one card, there is a reason for this. It is called consolidating credit cards. You take the card that has the most attractive transfer policy and best interest rate. Many major credit cards, like Visa™ and MasterCard™ now offer this option.
| Tip: When other consolidation options are not available, you may still be able to consolidate credit card payments through a debt management program. |
Should you not have a credit card with this option, another choice would be to go to your bank and obtain a low interest loan, such as a home equity loan, to pay off the debts. In addition to getting a better interest rate, the appeal of having only one bill every month to pay is great. Not playing the “rob Peter to pay Paul” scheme becomes history and we begin to see our bills and hence our lives in a different light.
As we learn more truly helpful ways to help ourselves and change our bad money handling experiences into good ones, we see that there are things possible for us to do that we didn’t even dream possible before. The best advice is, stick to your plan. It may take time, but you will begin to reap the benefits sooner than you think! |