Debt is already a way of life for a lot of people and consolidating credit card debt is a question you could be looking into. This is because, in this day and age, credit card debt is one of the most challenging situations to overcome. The combination of ease of use coupled with high-interest fees and other penalties and charges result in high card debt.
What makes this unique is the option to pay only a minimum amount of the total payable every month. If you charged a total of $1000 on your card in a month, the idea is to pay it in full. This helps you manage your finances well by avoiding interest and fees. It will also reflect positively on your credit report when you pay your cards in full and on time every month.
However, there will be times when you get ahead of yourself and charge way too much on it. So much so that you cannot pay it in full when the bill arrives. You could choose to simply pay the minimum amount on the card which means rather than pay $1000, you will pay a small percentage or a small fixed amount, whichever is higher. This is one of the reasons why you might be looking into consolidating credit card debt in the future.
Once you feel comfortable in paying only the minimum amount, a lot of negative things can follow. You could fall into a wrong sense of comfort knowing that you can charge big amounts on your card and you only pay a small percentage of that total debt. You need to understand that this gets expensive over the course of time as you would be paying interest and fees on top of the actual amount you charged.
Consolidating credit card debt is a viable option
When you begin to understand how much it is costing you when you are only making minimum payments on your cards, you start to look for ways to pay it off. The problem is that the amount you have to pay in full is already beyond what you can put down in one go. This is where consolidating your debt comes in.
The idea when you consolidate your debt is to help you stay on top of your payments. This is helpful especially in instances when you are trying to pay off more than one credit card. It could be a difficult juggling act when you are trying to remember more than one payment amount, a couple of due dates, and even a few lenders to pay every single month.
When you consolidate your card debt, you get the chance to focus on just one payment, one due date, one single lender, and even one interest rate every month. This gives you a better chance of making sure that you make your payment on time until you pay off your debt. Doing so keeps you away from further debt and helps your credit score as well.
Debt consolidation options
One of the most common programs people choose to use when faced with multiple debt payments is to consolidate them under one account. USA Today shares that it helps simplify the bills to be paid. What most people do is to consolidate and transfer all their credit card debt under one card. Preferably, this card offers a 0% interest for a limited period of time as this would result in a lot of savings.
Another option people take when consolidating credit card debt is to take out a personal loan to pay for their cards and just pay one loan. The tricky part in this is that the interest rate given by a lender is dependent on a number of factors including credit score. You need to weigh this option well if it will be beneficial to you.
What to consider when taking out a personal loan to consolidate card debt
As tempting as this is, there are a few things you need to remember when taking out a personal loan to consolidate your debt. You need to be aware of these things to help you make a better decision.
Borrow what you can afford
Taking out a personal loan can be a great way to finally help you pay off that credit card debt though you need to be aware of the amount you take out. The reason is that there are instances people borrow more than what they actually need and use that extra amount to buy items they want. This can land you in deeper debt. CNBC shares that most US adults have about $28,900 in personal debt.
If you borrow more, you will have to pay back more and this can make it harder for you to pay back your loans. This can make it a lot harder for you to repay back your debt. You could only be making things worse. If you are consolidating credit card debt using a personal loan, be sure to take out only the amount you need. Borrowing more than you need will only land you in deeper debt because you are paying more than what you should.
Borrow for the right reasons
You need to borrow and take out a personal loan for all the right reasons and commit to changing your ways after that as well. Once you pay off and consolidate your credit card debt, you need to make sure that you do not find yourself in the same position in the future. At the very least, you need to learn from your financial mistakes.
If you had to look into consolidating credit card debt because you were impulsive with your purchases, you need to make sure that you check your card use. Lookout and address your spending triggers and make sure that you do not overspend again. It might be a good idea to simply carry cash with you so you stick to your budget.
Understand the fees involved
When you are taking out a personal loan, any lender would have some fees involved with the transaction. You need to be fully aware of these fees and especially the penalties involved if you miss payments. This prevents being caught off-guard and might even inspire you to make your payments on time.
You cannot go into a loan without having a clear understanding of these fees and penalties. For one, it will help you weight if this decision is the best course of action considering fees could add up tidy sum even before you take out the loan. Penalties can also be deal-breakers especially as personal loans are collateral-free. Lenders tend to charge more if you miss a payment since they do not have any physical assets you own that they have a lien over.
Consolidating credit card debt with the use of a personal loan is an efficient way of managing your card debt if you carefully consider all aspects of it. From the interest rate, you will get to the fees and even the penalties involved – you need to make sure that you understand these to help you make the best decision for your current financial situation.