Consolidating Credit Card Debt
Consolidating credit card debt is usually a high priority for people struggling with debt.
Most people in debt are that way mainly because of credit cards.
After all, it's not hard to do. Credit cards are easy to get.
And we definitely don't learn how to handle finances and credit in school.
Before we know it, we've racked up thousands, if not tens of thousands, of dollars in credit card debt.
So we struggle to make the minimum payments each month. But that just digs a deeper whole because the interest rates on the credit cards are outrageous. So we fall further and further behind.
In fact, we may even still be using our credit cards (we're so used to charging everything) even as we struggle to pay down the balances.
Eventually (hopefully), we realize that consolidating this debt is something we have to do if we ever want to get back on track financially.
So what exactly is consolidating credit card debt and how do you go about doing it?
When you consolidate debt, you use credit to pay off multiple debts (like multiple credit cards), exchanging multiple monthly payments for one single payment.
If you do it right, debt consolidation will free up more money each month because the interest rate you are paying on the one single payment each month is much less than the interest rates you were paying on the various credit cards.
If you want consolidating credit card debt to be of benefit to you, there are a few things you need to know.
- The interest rate on the single payment MUST be lower than the other interest rates you have been paying.
- Do not trade fixed rate debt for variable rate debt
- Pay off your debt as quickly as possible
- The new single payment each month MUST be lower than the combined total of the multiple payments you were making
Consolidating credit card debt can be done in a few ways such as
- Transfer high interest rate credit card balances to a credit card with a lower interest rate
- Get a bank loan such as a home equity loan
- Borrow against a whole life insurance policy
- Borrow from a retirement account
The one that will be the most viable option for most people will be the first one, transferring high interest rate credit cards to a credit card with a lower interest rate.
Understand that if you do this, you need to pay off the credit card as soon as possible, making payments larger than the monthly minimum and do NOT use the credit card (or other credit cards for that matter) to charge more stuff.