Debt is all-consuming, and many families live with it. Credit card debt, student loan debt, car notes, and home loans are all debt. While a mortgage might not seem like bad debt to you, your credit card debt is certainly bad debt. You’re paying interest, tying up your available funds, and you’re ruining your credit score with debt. The best thing you can do for yourself and for your finances is get your debt paid off in full. Experts offer their advice on consolidating debt and how it works for consumers. If you’re not sure whether it’s right for you, this information can help you make an informed decision.
Check Your Credit
The most important thing to do is check your credit. Credit card debt consolidation companies help find funding to help consolidate your debts, and that’s not easy to do when your credit report is incorrect. You’re going to need to get your credit report to check for inaccuracies and misinformation so you can apply for consolidation credit as quickly as possible.
Consider Credit Card Consolidation
One of the best ways to consolidate your credit card debt is with a 0% APR credit card. These offers are always available, and they’re free. You can transfer credit card balances to the new card, and you’ll end up with a set amount of time in which you can repay the debt without paying interest.
Get A Personal Loan
Personal loans are another option for anyone who has debt to pay. You can pay off your credit card debt by consolidating it all into a personal loan. You’ll eliminate numerous high interest rates for a lower rate on one payment. It allows you to pay off your debts faster and for far less. It’s a great option for those who have the credit and the ability to apply for a personal loan.
Don’t Cancel Old Accounts
Once your accounts are consolidated, many consumers begin cancelling their credit cards. You don’t want to run up your debt again, so this makes sense. However, you don’t want to cancel your oldest cards. Your credit score is dependent on the length of your credit history. If you have old accounts you want to cancel, you can shorten your credit history and negatively affect your credit score. It’s not safe to do this, but it’s a good idea to cancel any newer cards you have. Be careful how many you cancel, though. The available credit you have makes your credit utilization ratio look better when you’re not using as much of it. What does this mean?
Credit reporting bureaus calculate your credit score using a complicated array of methods. One method is your credit utilization. Your total amount of available credit is determined, and then it’s determined how much of it you’re using. Let’s say you have $20,000 in credit card debt and you just paid it off by consolidating it into a home equity line of credit worth $35,000. You’re only using the $20,000 and the other $15,000 is unused.
With your credit card accounts still open, your total available credit is $55,000 of which you are using $20,000. That’s just above 36% of your available credit, which is your credit utilization. If you cancel those credit card accounts and decrease your available credit to $35,000 and still have $20,000 of that utilized, your utilization increases to just under 60%, which is unfavorable and will affect your score.
Make Repayment a Priority
Simply because your debts are now consolidated doesn’t mean you can stop paying as much on the loan. You’ll want to apply all funds you were currently applying to your debts to help pay it off faster and more efficiently. Don’t stop paying those debts just because they’re not as costly. If you were paying $1,500 per month in minimum payments to your 7 credit card companies before consolidation, continue paying that much.
Financial experts want to see Americans debt-free, and that’s why they take the time to offer advice regarding debt consolidation. It’s not easy to live with debt, and these options can make it simpler for you to avoid debt and continue to live a life of financial freedom.