5 Steps to Credit Card Debt Consolidation

Credit card debt is an unsecured consumer debt incurred through revolving credit card loans. A credit card is a more convenient financial means of making daily purchases and other cash-based transactions. It can also be a mode of purchasing big-ticket items such as travel packages and big-time purchases.

Benefits of Using Credit Cards

1. Cashless transactions
2. Easier mode of payment especially for online purchases
3. Hassle-free (you can avoid waiting queue)
4. Valuable tool during emergencies and for unplanned expenses
5. Added benefits (travel rewards, cash back rewards, warranties)
6. Minimized exposure to fraudulent services or activities

Disadvantages of Credit Card

1. Higher rates of interest
2. Credit damage due to missed payments
3. Cash advances fees and rates
4. Annual fees
5. Credit card surcharges

Some credit card holders will take varied and several credit cards. Unfortunately for some, they become unable to manage multiple debts that they will start to pile up. When faced with accumulated credit card balance, holders tend to just make minimum payments or ignore the whole debt altogether. Both, however, is not enough to rectify the situation, but rather would make the situation worst since credit cards impose higher interest rates and would accumulate through time. Here are some tips you may consider to help you resolve such situations:

1. Create a payment strategy and stick to it.

There is no better way to clear yourself from debt but to settle your liabilities. Stop taking haphazard payments in differing credit cards, rather devise a strategy to maximize the payments. Basically, there are two rules to follow:

1. Prioritize the debt with the highest APR (Annual Percentage Rate).

• Prioritize the ones that will cost you more. Missing out on even a single payment will hurt.

2. Pay off the credit with the lowest balance first.

• Strike out from your list those debts with low outstanding balances. This will reduce your debts with accumulating interests. After which, start focusing on ones with larger balances.

2. Freeze your Cards

To effectively cut down your credit dues, you should stop relying on your credit card for purchases. Limit impulsive purchases and unplanned expenses.

3. Understand the Impact of Debts on your Credit Score

Your payment history and outstanding credit balances are two of the main factors that greatly affect your credit scores. This will be assessed by your future creditors and may be detrimental to your future applications.

4. Keep Watch on the Monthly Statements

If you already have piled up debts on your credit cards, you are already in the brim of financial distress. You should start watching over your spending and keep yourself from debt pit. Spend some time reviewing about your spending patterns, reset your habits and spend wisely.

5. Give Debt Consolidation a Chance

Consolidating your multiple credit card debts into single loan will aid you in managing scattered loans. Reduced interest cost is one of the most visible effects in opting to consolidate your debts. Remember that you only transferred your multiple debts into one card; this will not relieve you nor reduce the outstanding balances of your debts.

Ways to Consolidate Credit Card Debt

In settling your credit card debts, you may either pay everything off for a period of time or consolidate and pay them at once. If you opt to take the second resolution, the next question will be how to consolidate credit card debt. Here are some steps you may follow in consolidating your credit card debts:

1. Catalog all credit card debts

First, you must know how much you owe for each card you hold. Identify the following for each credit card:

1. Interest rate;
2. Payment terms;
3. Credit card rewards which may be applied to your debt; and
4. Outstanding balances.

There is no better way to start settling your liabilities but by knowing to whom and how much you owe. Also through this, you will be able to rank your priorities, based on the weight of the debts, i.e., applicable interest rate and outstanding balances.

2. Figure out how much to borrow

Add up the balance for each debt you have decided to settle. This will be the amount you’ll need to borrow to consolidate your debts and pay them off. The total debts should include the principal, the interest, surcharges, and penalties incurred due to the debts.

3. Shop for a lender.

To find a new creditor, it’s helpful to know the kind of loan you need and the level of credit score you would be required to have your lenders approve your application.

1. Get to know your options – There are several safe and smart ways to consolidate credit card debt. You might want to research them before coming up to a decision.
2. Evaluate your credit score – There is a certain level of credit standing which would assure you that you will be approved of application of debt or loan consolidation. Through your credit score, you can also identify other modes of consolidation you might want to consider.

In deciding which lender you will apply to, you should pay attention and compare the APRs, credit and payment terms and other incidental fees which may be incurred in your consolidation.

4. Apply for a loan.

Once you have found a lender that offers the best deal for your application, it’s time to apply.

5. Pay off your credit card debts

Pay your credit card debts thru the proceeds from your consolidation. Settle every single credit card debt outstanding. For your new debt, make yourself a monthly reminder of your new payment terms and make timely payments of your new debt.

Takeaway

Your vision is to be able to finally free off yourself from multiple debts and additional costs which you may incur. This will not be possible without your commitment to resolving the matter. Once you have paid off your credit card debts, develop a better and managed money habits. Resist the temptation of overspending and distinguish your wants from needs. Keep yourself off liabilities that will stress you out and live a better and more managed life.