If you’re like most American consumers, you’ve seen the ads touting the benefits of consolidating your credit card debt with a balance transfer offer or a personal or home equity loan. Before the recent economic recession, you couldn’t open your mailbox without finding numerous offers per week to consolidate your credit card debt through 0% balance transfers and other plans. And while lending criteria has become much tighter since 2009, the offers are still available, even for those with blemished credit histories and large credit card balances. And those offers are appealing. For consumers who carry a balance – some in excess of $10,000 – they’re looking for quick ways to consolidate their credit card debt and pay off their bills. If you’re one of those consumers considering a loan to consolidate credit card debt, you should know there are other options to help you pay down your debt. It’s especially important to look past the marketing offers to the fine print, as consolidating your credit card debt with a loan could mean a higher interest rate or longer repayment term – both of which may increase your total payments over the life of the loan or consolidation plan.
Rather than consolidating your credit card debt, the smartest move is to pay off your balance each month, never allowing yourself to get into debt in the first place. And the key is to pay more than your card’s minimum payment prior to your monthly due date, potentially saving you thousands of dollars in interest over the years. Today’s average credit card interest rate is more than 14% for both new and existing cardholders. And while that number may not mean a lot to you, it means big business for the credit card industry, as it’s their way of making money. Paying your credit cards on time, every time sounds simple, right? But for millions of Americans who are already behind on their payments, this advice comes too little, too late. However, before taking out a loan to consolidate credit card debt, there’s another option that could save you money – a balance transfer. Again, be sure to read the fine print. While you can consolidate your credit card debt through a balance transfer, remember the credit card company’s primary goal is to make money. If the card company is offering a 0% introductory interest rate, it’s possible you’ll be assessed other fees or that the interest rate will skyrocket once the trial period ends – which could put you even further into debt.
Consumers who are most successful with consolidating their credit card debt through balance transfers determine how much they’ll need to pay each month during the interest-free period in order to pay down as much of their balance as possible. The right way to consolidate credit card debts is to put debt counselors to work. They will negotiate with your creditors to get your balances and interest rates reduced. They will help you develop a payment plan that will likely save you thousands of dollars and help you become debt free in 24 to 48 months. This is called debt settlement and while it will have a negative effect on your credit score, it won’t be as serious as if you have filed for bankruptcy. Whichever route you choose to go, be sure to take a close look at your total financial picture – including current interest rates and what you can afford to pay each month – in order to determine how to pay down your credit card debt.
