Credit card consolidation
The fact that credit card debt is readily available and can have very high interest rates, makes it the most common type of debt to be consolidated. Credit card debt has the following characteristics:
- it is a type of unsecured debt
- It is a revolving line of credit (you can continue to borrow each month and carry balances over)
- it has high interest rate
When you only make the minimum monthly payment on a credit card, you will be barely paying the interest costs, without decreasing the principal balance in any significant way. If you have stretched your budget to the point that your marginal saving rate is zero, if and when an unexpected and unavoidable expense comes up, you could find yourself unable to make even the minimum monthly payments on your credit card debt and looking for a debt relief solution.
If you are considering consolidating your credit card debt in order to afford your monthly payments again and eventually get out of debt, you will want to understand and analyze your options carefully, since there are many ways of consolidating debt.
Steps to take before consolidating credit card debt
Before consolidating your credit card debt, be sure to follow these steps:
1. Analyze your Credit Card Monthly Statements
For each credit card you have, write down:
- the $ amount of your current balance
- the APR % (annual percentage rate, which includes interest and finance charges)
- the minimum payment amount due
In addition, if you are only making the minimum payment each month, other pieces of information such as the total interest costs that you will incur and the total time it will take you to pay off the debt if you only pay the minimum amount each month will provide you with an important benchmark for comparing your current situation with a consolidation loan. Following the 2009 Credit Card Accountability, Responsibility, and Disclosure Act (commonly known as "CARD Act"), each monthly statement must include:
- how long it will take to pay off the balance if you only make the minimum payment each month
- the total interest cost as a result of paying only the minimum amount due
- how much your monthly payments would have to be in order to pay off the bill off in three years (with an indication of its total cost compared to paying only the minimum amount due)
2. Call your credit card companies to negotiate better terms
Call each credit card issuer and ask them for:
- a reduction of the interest rate applied to your balance
- elimination of recent late payment fees (if any)
- a reduction of the monthly minimum payment required (if needed)
Customer service representatives are often authorized to remove fees and reduce rates right over the phone, so making these calls is a task that you can easily do yourself.