Credit card debt is one of the most frustrating things that an adult can ever have to deal with. Looking back, you may not be all that sure about how you got here. However, you’re here now, and you’re not going to tidy up those balances by sitting around and feeling sorry for yourself! Like countless other Americans, you may be considering going in for debt consolidation. While this can be a huge help, there’s a right way and a wrong way to go about it. Here’s a brief guide for consolidating your debt the right way.
Know Your Credit Report and Scores
Before you look into the details of a single debt consolidation service, you need to get familiar with your credit reports and scores. One little error in these can prevent you from qualifying for the best debt consolidation options out there, and keep you struggling under its terrible weight for far longer. You can get a free annual credit report from any of the three major report agencies; Equifax, Experian and TransUnion. After getting your report, free resources such as Credit.com’s report summary can help you understand what exactly it’s saying. This particular resource will also give you two free credit scores, which will be automatically updated every two weeks. Once you’ve become more familiar with your credit, you’ll have most of the information needed to choose a debt consolidation plan that’s going to work for you.
Weigh Up Your Options
As you’re probably aware, there are several different routes you can take to consolidate credit card debt. You’ll need to understand the various benefits, drawbacks and little nuances tied to each of these routes. Here are the three main options you’ll be looking at:
Personal loans will charge you simple interest, rather than the irritating variable fees of credit cards. Typically, they have terms of three to five years. One of the primary advantages to taking the personal loan route is that it gives you a definite, structured plan for paying off your old credit card debt. You may be able to rub out your credit card debt with a personal loan from your bank, credit union, or an independent lender such as LendingTree. Just make sure you’re looking into the lender’s credit requirements before you settle on one. In order to qualify for the lowest possible interest rate, you’ll need a pretty spotless credit history. Steer clear of any lenders that promise you loans regardless of your credit score!
If you have decent enough credit, you may be able to get onto a card with a particularly low interest rate. You’ll be able to transfer balances from your high-interest cards, shaving everything down to a single card with low APR, and saving a significant amount of money on finance charges. Yes, transfer fees can be pretty high. However, you’ll almost always come out on top by switching to a consolidation card. Some cards even have a 0% interest rate for the first 12 to 18 months.
If you’re not making any progress with shaving down your debt, and find that you have a serious debt problem, it may be a good idea to contact a reputable counseling agency and use their help to formulate a debt management plan. Through this system, you’ll only have to worry about a single monthly payment to the credit counseling agency, who will in turn pay each of your credit card lenders.
Do the Math
Debt consolidation can dig you out of some serious trouble, but it’s almost never free. Your credit cards are usually going to have a balance transfer fee, so you need to make sure that the cost of this doesn’t outweigh the benefits of getting a reduced interest rate on your outstanding debt. You also need to be aware of when any promotional interest rates expire, especially 0% APR on balance transfer cards. If you can’t realistically pay off your debt in that time frame, then you may not be saving any money at all by getting a consolidation card. You should be exercising the same kind of caution when it comes to debt consolidation loans. Be aware of loan origination fees, and always double and triple-check that the loan payments will be something that fits easily into your budget. If you agree to the terms of a personal loan and fail to stick to them, you’ll only hurt your credit. There’ll always be some kind of fee tied to your debt consolidation plan, so make sure you’re doing the math before you make a decision!