5 Steps to Consolidate Credit Card Debt

At best, credit card debt makes for a monthly payment you'd rather spend elsewhere. But at worst, credit card debt can be so overwhelming that you find you
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At best, credit card debt makes for a monthly payment you’d rather spend elsewhere. But at worst, credit card debt can be so overwhelming that you find yourself robbing Peter to pay Paul, yet still coming up short, resulting in stress and black marks on your credit report, not to mention an empty bank account. If you’re in this situation, take a look at credit card debt consolidation. By consolidating all of your credit card debts into one, you’ll be left with just one monthly payment to make, often with a lower interest rate and a longer repayment term. Your credit score won’t be adversely affected, and even more importantly, you’ll have enough money left to upgrade from ramen noodles to more belly-satisfying food.

5 Get Credit Counseling

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Credit counseling services are invaluable when it comes to connecting you with debt management and relief programs and teaching you skills to help you better manage your debt. A credit counselor will go over your budget with you to see what can be reduced or even eliminated. She may make suggestions for catching up and staying on top of things and setting financial goals that are achievable.

4 No More Charges

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Now that you have consolidated your credit card debts into one manageable loan, your charging days are over. Stick to using available cash for purchases. With credit card consolidation you may be tempted to open a new charge account, but you should really use those extra funds to pay off other owed balances, or take care of necessary purchases such as home improvements or a car repair, or build up your savings. Debt consolidation is a measure taken to help you manage your debt and learn from mistakes, not an opportunity to create new debts. Besides, many debt consolidation programs require you to agree to not take out any additional lines of credit or loans until the consolidated loans have been paid in full.

3 Consider Bankruptcy

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Bankruptcy, while often viewed as an extreme solution or last resort to handling mismanaged or overwhelming finances, may be a feasible way out if you’re struggling financially and are at risk for defaulted loans, mountainous debt and constant harassment from debt collectors. Chapter 13 bankruptcy in particular may be a good option for some people, as it consolidates your debts and sets up a fixed monthly installment payment plan. Additionally, debts consolidated in a Chapter 13 Bankruptcy filing may have their principal balances reduced, and interest rates are often reduced or eliminated altogether.

2 Consolidate

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You have several options to consolidate your multiple credit card debts into one: apply for a private debt consolidation with a financial institution; take out a personal loan; or take out a home equity loan. Private loan consolidation programs often offer lower monthly payments and longer repayment periods, though having longer to pay off a consolidated loan also means paying more in the long term. Personal loans may be an ideal choice because of lower interest payments, and your credit history won’t reflect anything negative, as it might if you enroll in a debt consolidation program. But if your credit score is less than stellar, you may not be approved for a personal loan—or, you may not be approved for the amount you requested—and you could also be socked with a higher interest rate. If you’re a homeowner and you have enough equity in your home (equity is the value of your home minus what you still owe on its mortgage), a home equity loan may be a good solution. Such a loan uses your property as collateral, but offers fixed interest rates and fixed monthly payments and long repayment periods.

1 Contact Your Creditors

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If you’re struggling to pay back your credit card debt and still make ends meet, contact the issuers of your credit cards and let them know. Don’t be afraid to drop the C word—consolidation. Inform them that credit card consolidation is something you’re strongly considering. In many cases this may be enough to motivate your creditor to lower your interest rate or otherwise negotiate a new payment plan that puts less of a strain on your finances. And if you happen to have multiple credit cards from the same creditor, they may suggest their own consolidation program.