In a down economy, it is not unusual for people to experience some difficulty with overspending. Spending more than one takes in almost always leads to more debt than a family or individual can handle. It leads to a vicious cycle of living from paycheck to paycheck and if one major financial emergency comes along, it throws the whole budget into a tailspin. For those who carry a lot of credit card debt, the experience can be daunting. When there is not enough money to go around, there will be calls from collectors because some bills do not get paid on time while others may not get paid at all. How can people get off the merry-go-round of debt and avoid drastic measures like bankruptcy? One option to consider is credit card consolidation.
Credit card consolidation is a way for those who are heavily in debt to get a fresh start. For example, if an individual has three or four credit cards with balances of $1000 or more with interest rates of 21 percent, it will take many years to pay the cards off when only the minimum payment is made every month. Additionally, the monthly interest that piles up means those minimum payments will usually go toward interest rather than paying down the balance. The interest accrued each month is equivalent to continuing to use the cards and paying on it the bills, but never really making a dent in the amount owed. Consolidation offers a way to drastically shorten this repayment time.
Consolidating debt gives control over one’s finances because there will be only one bill to pay. When the interest rate is lower, the entire debt can be paid off many years earlier than it might by making payments to multiple creditors.
Persons who are considering consolidating credit card debt should keep the following in mind:
- Shop around for the best plan for you. Find one you know you can manage and will provide you with the educational tools you need to execute it.
- Avoid using credit cards that caused the problem. As they climb out of debt, some people are tempted to take out new loans or lines of credit. This will only send them back into the vicious circle of debt. Stay vigilant and avoid more debts.
- Pay the consolidation payment on time and rebuild credit history. Paying the renegotiated debt back on time in accordance with the agreement means it will be paid off faster and that will help raise the credit score.
Individuals and families don’t set out to get into so much debt that they are in danger of losing everything. Buying things on credit and getting loans for cars and a house doesn’t always translate into disaster, unless a person gets overextended. Then all it takes is an economic reversal, illness or loss of a job to create a problem. At that point, some sort of consolidation debt becomes a viable consideration.
The first thing to do when debt overwhelms you is to sit down and list every single debt. This includes all credit cards, including as gas, store and more general credit cards. List minimum payments and when each is due during the month along with the total owed and interest charged. List loans for the cars and house and any other loans, total owed, payments, interest and due dates.
Next, list assets: This includes wages and other work-related income, income from investments, interest, rent, alimony and any public assistance. List basic expenses for rent or mortgage, utilities, taxes, food, clothing, etc. After subtracting basic expenses, is there money left over? This is money that can be used to pay off debt.
With this information, credit counselors will assist you in finding a positive direction for your financial future. It may involve consolidation debt. They can negotiate with your creditors to reduce fees and interest rates. Then they’ll combine all of your monthly debt obligations into a single payment that is both affordable and can reduce your debts quickly.
Other options include consolidation loans, settlement, and bankruptcy, but these should all be avoided in almost all circumstances. Consolidation loans try to pay off debt with more debt, which can lead you to an even more dire situation than before. Bankruptcy and settlement can ruin your credit, making it impossible to perform a lot of financial activities in the future. Take the safe route and consolidate your debt to pay it off and improve your credit rating.
Once you’re finally out of debt, learn to stay that way. Make a budget and learn to live without credit cards.