credit card debt consolidation
Consolidating your credit card debt might prove one of the most successful steps in your debt management efforts – even better than regularly paying your monthly payments. However, do not get it wrong – consolidating credit card debt has nothing to do with your issuer forgiving you the money you owe them. The only way for an issuer to write off your payments is through bankruptcy but you will certainly consider bankruptcy only if you are really helplessly drowning in debt.
Consolidating your credit card debt is something different. You still owe the same amount of money to each of your creditors but instead of paying each of them separately, all your debts are gathered together in one large monthly payment. Generally the idea is that by consolidating your credit card debts into one payment, it is easier to manage and you save money from this. However, the major advantage of consolidating your credit card debt is when the interest rate of your consolidated debt is lower than the interest rates of your credit card debts – i.e. you save from paying less interest.
Another advantage of consolidating your credit card debt is that generally you will be able to negotiate a longer period of payment. This is not always an advantage because as you know, the longer the term, the more money you pay in the form of interest but if you are currently under pressure and can't manage your current payments, prolonging the term is great. You will have more space to breathe and you will not be charged late payment fees, which is also another significant way to save money.
With all that said, it is obvious that consolidating your credit card debt is good when you have many creditors (i.e. many credit cards with outstanding balances) and you are paying a lot of interest rate. Having many open lines of credit is bad for your credit record, so in addition to being easier to manage, this is one more reason to reduce the number of your creditors as much as possible. However, if you only have a few cards and you have small outstanding balances, then you will hardly benefit from consolidating your credit card debt because your debt simply is not enough to be worth the effort.
Besides, consolidating credit card debt is not necessarily free of charge and if you add the expenses that are involved in consolidating, it might turn out that it is better if you stick with your present payment scheme. So, you may want to go to a professional debt management consultant, who will be able to calculate more precisely if you will benefit from consolidating your credit card debt or not.
But before you go to a consultant, you need to be familiar with your debts. Sit down for a couple of hours and summarize them all. If you have some low-interest debts, you may exclude them from your consolidation plans because you will hardly profit from this. You may also want to pay them, just because it is better to have as few creditors as possible, though in many cases it is advisable to pay your low-interest debts last and instead concentrate on the higher interest ones first.
After you have decided that consolidating your credit card debt is worth, the last thing is to find the right offers. There is no shortage of debt consolidation offers and they come into all flavors – starting from a mortgage loan, to personal loans, to balance transfer credit cards. But no matter what type of credit to consolidate your credit card debt you choose, always read carefully the agreement. Watch out for unfavorable conditions hidden in the fine print and if there is something unclear, ask questions before you sign.
You should be especially careful about charges because very often there are many of them and you should know this in advance, otherwise, there might be some unpleasant surprises later. For instance, balance transfer credit cards have in mind that the low introductory rate is a teaser and after some time (six months or an year) you might face an incredibly high rates. Also, many balance transfer cards treat balance transfers as cash advances and charge you transfer fees in addition to the interest rate you pay. As you see, there are many mines that you have to watch out for, when you go the consolidation way!