Consumers face major financial issues due to credit card debt. All it takes is the mismanagement of one account, and it’s easy for the consumer’s credit to spiral out of control. Credit cards, especially store cards apply higher than average interest onto the balance. As consumers continue charging on the account, the worse the situation gets. Consumers who feel bogged down by credit cards learn how to consolidate it in 10 easy steps.
- Calculate Your Income-to-Debt Ratio
Calculating your income-to-debt ratio helps to determine what you can afford on a monthly basis. The income-to-debt ratio is based on your income, the total amount you owe, and monthly obligations. The purpose is to identify the highest amount you can afford if you choose a debt consolidation loan to settle your credit card debts.
Debt consolidation loans are a beneficial way to settle debts and address different types of debts. A lender provides a loan in an amount you can afford. It’s an easier way to pay off debts all at once and, basically, you pay them off through one new debt without paying several payments each month. Further information about the loans is available at Debt Consolidation USA now.
Traditional lenders must establish affordability for the consumer before offering them a loan. If the consumer isn’t earning enough to cover the loan payment and monthly obligations with their current income, the lender is less likely to provide them with a loan. Non-traditional lenders don’t follow careful practices and might extend a loan that isn’t affordable and just leads the consumer to even further debt unnecessarily.
- Figure Up the Entire Credit Card Debt Balance
Figuring out the entire credit card debt balance shows you where you stand and why your credit might be suffering. If you are paying more than two credit card payments a month, it can become overwhelming, and you are often restricted to the minimum payment. Paying the minimum payment each month requires more time to pay off the debt and causes you to incur more interest on the credit card account. Figuring the full balance you owe for all accounts makes it easier to find a better way to settle the debts.
If it is affordable, it is possible to pay a little extra on each account each month to pay off the balance. It is also possible to transfer the balance to another credit card that has a lower interest rate. The transfers are another method for consolidating the credit card debts and cutting them down to one payment each month.
- Identify the Average Interest Rate for All Credit Card Accounts
Interest rates are a viable reason for choosing a better solution for settling credit card debt. Consumers who have a better credit rating can get a consolidation loan at a lower interest rate. All the accounts are paid off through the loan, and the borrower just pays the one payment each month. However, consumers with less-than-stellar credit could acquire a debt consolidation loan and refinance it after they repair their credit to achieve a better interest rate. A review of all the credit card interest rates defines what choice is better for the consumer and helps them lower their payments overall.
When considering options for paying off credit cards, the consumer should evaluate the current interest rate for each credit card account. All high-interest credit cards should be settled first. If the consumer has great credit, they could open a new account and transfer all their balances to the new low-interest card. The consumer should review the projected monthly payment before the transfer and determine if it is affordable based on their income and existing monthly obligations. If it presents the best rates and low payments, it is a great choice for paying off the credit card debt.
- Get Your Credit Scores
Reviewing your credit scores helps you identify where you are financially and what options are available to you. For example, debt consolidation loans require a credit score of at least 630. The lenders cannot promise lower interest rates and more affordable payments when the credit score is at the lowest level. Consumers who have higher credit ratings obtain better interest rates. An assessment of your credit shows you what you need to pay off to improve your credit rating.
- Determine if You Can Borrow from Monetary Assets
Examining your assets will identify ways you could borrow from the assets and settle your credit card debts. For example, whole life insurance has options for borrowing money from that investment. Once you take out the loan, you pay back the funds in monthly payments. It’s essentially borrowing from yourself.
Savings accounts, 401(k) accounts, and CDs are other options where you could acquire the funds needed to pay off your debts. It is best to examine any possible penalties for early withdrawal and the exact tax implications after you withdraw the money.
- Find Out if the Credit Card Accounts are in Collections
Finding out if the credit card accounts are in collections could also prove helpful. Once the accounts are in collections, the balance increases if the account was purchased by a collection agency. Under the circumstances, the original creditor has received a payment from the collection agency and possibly through an insurance claim. Collection agencies provide settlement offers to collect any portion of the outstanding balance. Consumers get installment plans or pay a lump sum payment. Once all payments are received, the debt is paid off, and the collection agency removes the debt from your credit reports.
- Attend Credit Counseling Programs
Credit counseling programs help consumers take a better approach to manage their finances and learn better ways to settle debts. The law requires the programs for any consumers who are considering filing bankruptcy. The courses highlight common problems consumers make right before they fall into overwhelming debt and financial hardships. Consumers use the information they acquire from the courses to avoid further economic issues in the future.
- Review Debt Management Programs
Reviewing debt management programs helps you review more opportunities for paying off credit cards and other types of debts. Debt management counselors collect a monthly payment from consumers and divide the payment among several debts. It is an alternative to bankruptcy and is effective for paying off credit cards especially. As each debt is settled, the payment is re-allocated to the remaining debts until you are debt-free.
- Determine if You Qualify for Consolidation Loans
Determining if you qualify for consolidation loans is helpful before you even pursue this option. If you need a non-traditional lender due to credit problems, you are more likely to get a high-interest loan that will take longer for you to pay off in the long run. However, you can work with a lender to find a loan that meets your needs. Credit card debts are paid off easily if you consolidate them into one account. However, when reviewing the loan products, weigh the pros and cons before you accept a loan. Shopping around helps you to find a better loan product that won’t increase your debt balance or lead to higher-than-average interest.
- Determine if Bankruptcy is a Better Choice
Evaluating bankruptcy options shows you what is possible if you choose bankruptcy. The cases require the consumer to establish eligibility through a means test. If the consumer has an income that is higher than the median for their household, they qualify for chapter 13. If they don’t, the consumer qualifies for chapter 7. Chapter 13 is a repayment plan that allows you to pay off the debt over the next three to five years. Chapter 7 requires you to liquidate some of your assets to pay off debts.
Consumers who choose bankruptcy must follow all stipulations of their cases to ensure the filing procedes properly. If the court denies the bankruptcy, the consumer is responsible for all debts included in their claim, and creditors have the right to file a lawsuit against the consumer to collect the outstanding balance. Additional conditions could apply to the bankruptcy, such as consumers must pay off debts that weren’t included in their case in chapter 13 with their disposable income.
The major repercussions of bankruptcy are that it remains on your credit reports for ten years. This could make it difficult for you to open new lines of credit or acquire financing. It could prevent you from getting employment in the financial sector and might introduce issues when applying for an apartment lease or other housing.
Consumers review their options when settling credit card debts. Debt consolidation loans allow the consumer to pay off several debts with the funds and pay only one payment each month. Settlement offers are available if the account is in collections or owned by a collection agency. Bankruptcy is a viable choice for consumers who have excessive credit card debts. Debt management programs and credit counseling are beneficial for consumers, too. Consumers review the pros and cons of each option and find the best solution for them.