If you do not want to use a debt consolidating credit card company then you can use the DIY or do it yourself approach to paying off your debts. A common strategy is to transfer your existing credit card balances on to a new low interest rate credit card. A few years ago free interest rate cards where widely available which meant that your credit balances did not have any interest charged on them.
Unfortunately, there are few lenders if any, who offer zero interest rate card deals these days. However, low interest rate cards can still minimize the cost of borrowing while you begin paying off your outstanding balances.
A word of warning though. Many of these debt consolidation credit cards advertise very low interest rates but, only for an introductory period. These can commonly range from 3 to 6 months and then their higher rate of interest kicks in.
Therefore, before applying make sure you check when the introductory period ends. In this way you can avoid paying higher interest rates by either paying off your balances during the low rate introductory period or transferring the balance to another low interest rate card before the deadline.
The length of the introductory period is very important as you will need to decide if it is long enough for you to clear the outstanding balance. For example, if the introductory period is for 6 months then, work out how much you will need to pay each month to clear the debt. Only apply for a low rate credit card if you believe you have the time and funds to clear the balance.
Watch out for balance transfer fees. Providers who offer low interest rate credit cards like to get more money out of you by charging you extra fees. It is a good idea to compare a number of offers and select a card with the lowest fees and the longest low rate introductory period.
Using a Debt Consolidation loan
There are financial providers that offer credit card consolidation loans that can be used to pay of unsecured debts. These work on the same principal as ordinary consolidation loans. The rates of interest charged on these loans are lower however, in the long term you actually pay out more due to a longer repayment schedule.
Pros & Cons of Card Consolidating Credit Card Debt
Consolidating your credit card debt through this approach provides the advantage of lowering your interest rate charges and therefore, lowering the amount you have to pay out. When money is tight this can be essential in preventing you going over the edge.
There is also the convenience factor of having to pay only one monthly payment. If you use many credit cards the scheduling of paying each account with the correct amount at the right time can be an organizational nightmare. With only one payment life is a lot less stressful and more manageable.
The other key benefit is that the creditors who sign up to the repayment plan cannot harass you for payment as long as you keep paying.
There are many disreputable debt consolidation agencies out there that just want to rip you off. Therefore, you need to use your due diligence when choosing one to work with.
In many cases a debt consolidation program can seem to reduce your cost but this could be as a result of the debts being paid over a longer period of time. This means that in the long term you are actually paying out more money on interest charges even though your monthly payment is lower.
Not all your creditors may agree to a debt consolidation plan and may pursue you in other ways to collect their outstanding debts from you.
Debt Management To Consolidate Credit Card Debt
Debt management programs can be undertaken with the help of a certified credit counselor or yourself. The debt management concept is quite simple to understand. For people who are having difficulty in meeting the payments on their credit cards they can approach their creditors with the aim of renegotiating the terms to make them payments more affordable. This can be achieved if the provider is willing to waive late fees or lower the interest rate charges on the monthly payments.
If you feel that you have reached a stage where you can no longer pay off your credit cards then, take the initiative by approaching your creditors first before they start calling in debt collectors. By sincerely explaining your financial situation most creditors should be receptive and willing to work out a debt management plan with you. At the end of the day creditors will want to get some of their money back rather than nothing at all.
Credit Card Debt Settlement
This is also referred to as debt negotiation. This should not be confused with debt management as they are different. Debt settlement involves negotiating with your creditors to reduce the amount of debt you owe. In certain cases credit card and other unsecured debts can be reduced by 30% or more.
The debt settlement is commonly undertaken by debt settlement account companies who negotiate with the creditors on your behalf. Again, when selecting a company use your due diligence. New laws have been passed that debt settlement and bad credit repair companies need to adhere to. Some of these rules include the following:
- A company cannot charge an upfront fee until they have negotiates and reduces a persons debt.
- The company must provide a signed agreement between the company, client, and creditors
- The agreement should also outline their costs, what they will achieve and when.
How To Prevent Credit Card Debts Getting Out Of Control
Credit card consolidating credit default strategies are good ways to prevent your debts from getting out of control as well as limiting the damage to your credit rating. However, these are situations you really want to avoid in the first place.
The best way to avoid falling into a spiral of debts is to improve your money management skills. These strategies are simple to understand but they require commitment and discipline to implement.
Budgeting is a very important skill that everyone should learn. If they did they would never get into debt. Budgeting helps you live within your means. The core concept is comparing your income against your expenses. What you want is to have a greater amount on the income column compared to the expenses column.
If this is not the case then budgeting will help you identify which expenses you can reduce so you have a surplus left over at the end of the month. If you have outstanding debts your surplus income should be prioritized to pay off your unsecured credit card debts as soon as possible.
- Lose The Borrowing Habit For The Time Being
When you are in the credit repair mode stay away from borrowing. At this point your credit rating does not need to be lowered further which will happen if you continually apply for new lines of credit. Hard enquiries on your credit report can lower your credit score as these can suggest you are continually in need of new credit lines.
- Create An Emergency Account
If most people lost their jobs they wouldn't have enough cash reserves to last them for 4 to 6 weeks before they headed into debt. That is why it is a good idea to build up an emergency fund while you still have an income. Most experts advise that you should build up an emergency fund that will last you at least 6 months.
Each month you should aim to deposit 10% of your income into a high interest saving account until you have enough cash reserves to survive on for up to 6 months to a year. You should also base the emergency fund on covering your mortgage and day to day living expenses.