Consolidating credit card debt may be one of the wisest financial moves you can make. It’s a great strategy for getting out from under a pile of credit card bills with high interest rates that spike up to 20 percent or more when you get behind.
So, how do you go about consolidating credit card debt? You have a few options – negotiating a deal with a debt consolidation firm to reduce interest rates and develop a consolidation plan where they pay your creditors and you pay them a single payment that includes a service fee, a secured consolidation loan and an unsecured consolidation loan.
Let’s start with the credit card consolidation plan that works through a debt counselor. When you enter debt counseling three things usually happen. First the counselor sits down with you and all of your debts. They create a list and find out exactly how much debt you have. Second, they work with your creditors to work out deals that included lowered interest rates, lowered balances (usually settlements and closed accounts) and eliminated over limit and late charges. Third, the debt counselor will give you classes and advice on budgeting and staying out of debt for good.
The second method of consolidating credit card debt is a secured consolidation loan. This option is not available to everyone. A requirement for this method is that you own your own home and that you have positive equity in your property. The equity is what will be used to secure the consolidation loan. The lender will pay off your loan and you will pay a single fixed-interest payment to the lender instead. This payment is definitely lower in interest than your previous debts.
An unsecured loan for consolidating credit cards is similar to a secured loan in that the lender pays off your debts and you pay them back on a fixed-interest single payment term. The catch here is that this loan is higher risk, and you have to pay a higher interest rate.
You’ll want to follow the advice of your financial counselor in which consolidating credit card debt plan is right for you.