We all use short term unsecured debt, which is in the form of credit card debt and many of us have more than one credit card. Credit cards charge interest and other fees, which makes this type of debt expensive. Here are some reasons you may want to consider consolidating your credit card debt.
Interest Rates are High
One of the main reasons why people consider consolidating their credit card debt into one card is because of interest that is being charged on their existing credit cards is too high.
The credit card industry is competitive, which means that credit card providers do not all offer the same interest rate. This means that some credit card providers offer significantly lower interest rates compared to other issuers.
If it will be financially beneficial for you to consolidate all outstanding credit card debt into one credit card debt with a lower interest rate then you should consider doing this as you will be making savings.
The Annual Fees
Credit card issuers now ask members to pay an annual usage for the credit card. This annual fee can be pricey and they can quickly add up when you have more than one credit card and have to pay numerous annual fees.
However, if you are considering to consolidate your credit card debt because of this then make sure that the credit card provider is not adding this fee somewhere else through hidden fees or a higher interest, because you may find that the overall cost of funding the debt adds up to more than just paying the annual fee on your existing credit cards.
Consolidation of Credit Cards as a Personal Loan
Many of us do not know how to budget credit card spending. We have a limit and seem to think that we need to spend all of it. However, if you spend your limit then you will be spending years trying to pay the debt back. Every month we have to make at least the minimum monthly repayment to the credit card provider. This can become highly stressful when you are trying to pay more than one minimum every month.
Due to this, a lot of people we look at consolidating their credit card debt through a personal loan, which can be paid back monthly.
A personal loan is cheaper than credit card debt, so if you believe it will take you more than a year to repay your credit card debt then a personal loan consolidation might be the answer.
Bad Credit Rating
If you have let your existing credit card debt get on top of you to the point where you are not able to make the monthly minimum repayments then your credit rating will take a hit, which means it will be harder for you in the future to get any type of credit, which could be another reason why you might want to consider debt consolidation.
They Are Paying You
The last reason why you might want to consolidate your credit card debt so you have one debt is because the credit card provider is paying you to. This might be hard to believe but the credit card industry is now so competitive, providers are now trying to get people to sign up to their card.
A credit card issuer may know that you have an existing credit card and may ask you to transfer your credit card debt balance to them and in return, they may reduce some of your debt from your outstanding balance.
However, check the interest rate and other fees on the new card before you make the switch and make sure it makes financial sense.
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How to Consolidate Debt
Consolidating debt is not the right option for everyone, but it is able to improve your finances when it makes sense.
Always Do Your Research
Before you decide to consolidate and see if you qualify, you will need to know what you want to consolidate.
You will first need to check your balances and rates on your credit cards so that you are able to compare these to new options. You are able to consolidate all of your debt or just some of it.
You will then need to find what options are available to you. This can be done by filling out a simple form and then you will be able to check rates and how it will affect your credit score.
Compare the rates and decide how much you wish to consolidate. You do not need to consolidate all of your cards, but if your cards have a higher rate than the new offer then you might be able to save by combining them all.
Applying for a Personal Loan
Once you have found the option you like, then you will need to apply for the loan, verify your information and sign.
If you are applying for a personal loan to consolidate your debt then lenders will look at:
- Your debt to income ratio
- Your credit
- Your payment history
- Your lines of credit
- Proof of employment and income proof.
Credit cards can be expensive when you have accumulated a good amount of debt. If you are struggling to pay this debt back then you can consider consolidating the debt so that it easier and cheaper to pay off your debt. You can move your outstanding debt to a new credit card or use a personal loan to consolidate your debt. Before you make any decisions read all the fine print and make sure that it is financially worthwhile to do this.