"When one consolidates all unsecured debt, into a debt consolidation loan or service. This is typically done through a non profit, or for profit company which works to reduce minimum payments and high interest rates on credit card and unsecured debts".
Credit Card Debt Consolidation: Tips
We often get asked to break down the top 3 tips to the credit card debt consolidation programs. Since this is becoming a commonly asked question, we felt compelled to explain these three easy tips here on our website. As always, it's recommended to keep these tips handy to ensure a successful consolidation program. By utilizing these tips, consumers will often find ways to further benefit from these programs when repaying debt.
Tip # 1:
The first tip to credit card consolidation would be to capitalize on the reduction of minimum payments. Many consumers often find themselves making minimum payments only to see that the balances go no where. When entering a consolidation program, it's never a good idea to pay just the minimum payment even if the payment amount gets reduced. When entering these programs, it's often best to try and find a way to double up on the minimum payments. When consumers do this, they put a big percentage of the additional payments they make towards the principal balance owed. When consumers make just the minimum payments, a good part of it goes towards compound interest and other finance charges. Although making more than the minimum payment may seem like common sense, it's an excellent tip to reducing credit card debt when enrolled in the program.
Tip # 2:
Another common tip to further benefit from the credit card consolidation programs, is to try and find a way to capitalize on the reduced interest rates. By default, when an interest rate is lowered they often receive a lower minimum payment. If it's possible, it's always advised to focus heavily on tip # 1. But given that option is not feasible, try and see if the creditor with the highest balance will allow you to transfer the balance owed to one of your existing accounts with the lowest interest rate. By doing this, consumers will see more go towards the balances as opposed to finance charges. The key point to this tip is to try and secure your balances only on the open accounts with the lowest interest rates.
Tip # 3:
The third tip when entering this program is to setup your payment as soon as possible. For sake of argument, many consumers will approach a debt relief company and request that the payment is setup weeks or even a month in advance. When entering a debt management plan, it's important to try and make the payment as soon as possible. Setting the payment up weeks in advance, will result in the consumer falling behind. Although a DMP will work to re-age the accounts to current after a few consecutive payments, it's always advised to make the payment as soon as possible to avoid falling behind. This tip is never really explained when going through the quoting process as the companies are just eager to set the client up and don't want to deal with stressing out the potential client. So from the day the quoting and enrollment process takes place, it's advised to not exceed two weeks when setting up your first draft.
About the credit card debt consolidation programs
The credit card consolidation programs were created to help consumers from credit card debt, without the need of filing for bankruptcy. The creditors are notoriously known for taking advantage of consumers by using finance charges and high interest rates. It's a proven fact that most consumers will max out their credit cards within the first 30 days of having the credit card activated. When consumers make minimum payments on these high balance cards, they soon realize that the balances do not go down once the minimum payments are made. As the consumers try and make minimum payments with these high interest rates and minimum payments, they find that paying off the debt will be virtually impossible. Because of this, it's best to look into your credit card debt relief options, to avoid making pointless minimum payments. As always, it's a good idea to educate yourself on the various types of credit card consolidation. By doing this, consumers will have a better understanding on how these programs differ from one another and how they can live a debt free life.
The definition of credit card debt consolidation, would be best summed up by consolidating all unsecured debt into one lump sum. The client will then have the option to have one monthly payment that he or she can setup according to their financial situation. Each month when this monthly payment is made, that payment is then redirected to the creditors (don't confuse the consolidation program for a loan). Of all debt relief programs available today, credit card debt consolidation is by far most popular. The program works by reducing high interest rates, minimum payments while allowing the consumer to have one monthly payment regardless of how many creditors they have. According to FICO when searching for what's in your credit score, credit counseling will not harm the consumers credit.
Why consumers need credit card debt consolidation
It's important for consumers to understand why so many seek the credit card debt consolidation programs. According to statistics on credit card debt, most consumers will come close to the allowed credit card limit in the first thirty days of activating the credit card. Furthermore, most consumers pay only the minimum required payment when the bill comes due. Because of this, the minimum payments the consumer now makes goes towards finance charges and not the actual balances owed. Since more than ninety percent of consumers fit the above criteria, it's only a matter of time until they give up and file bankruptcy. This is why consumers need a credit card consolidation program.
Since so many consumers were filing, the creditors created programs such as debt management and even debt settlement. This allows consumers to find alternative ways to repaying debt without the need of filing for bankruptcy (which in turn, gives the creditors nothing). When paying the debt directly with high annual percentage rates and high minimum payments, the consumer literally gets no where when wanting to repay the debt owed. The consumers who do this, often wake up years down the road only to see that the balances remain the same to what they once were. In short, this would explain why this program was created and why consumers need it.
Consumers need to come to the understanding of why this type of consolidation is needed, it's important to understand how creditors try and push introductory interest rates in order to obtain lifelong customers. When consumers start to feel as of the balances are not going down, that's when he or she should consider consolidation as a possible program to consolidate debt.
Top 3 programs for credit card debt consolidation
Consumers are often confused on which path to pursue when it comes to credit card debt. Because of this, our company will break down the top 3 ways on how to consolidate debt. When considering a way to repay creditors, it's important to know which programs to pursue and which to avoid. We hope these three tips will help you when making your decision.
Program # 1: Credit Card Debt Consolidation Program
The most common and most respectable way to consolidate credit card debt, is through a debt management program. Better known as a DMP, consumers will be able to consolidate credit card debt through a non-profit or for-profit company. By doing this, the consumer will remain current with the credit cards while the interest rates are reduced to something more realistic. Creditors are less willing to work with the consumers directly, but are more lenient towards debt management companies. Also known as credit counseling, this program will not harm the credit score and works only to reduce the minimum payments, APRs while in turn keeping the consumer current.
Program # 2: Debt Settlement Program
The second most popular program when considering credit card debt consolidation, would be debt settlement. This program works by reducing the balance. Unlike consolidation that works to only reduce the minimum payments and interest rates, this program will try and have the actual balance reduced. When considering this route, it's important to understand that no company will ever make a guarantee on the outcome of this program. The average settlement tends to be at around fifty percent, but can range between twenty and sixty. When considering this type of program, make sure that the TSR laws implemented by the FTC are being followed.
Program # 3: Consolidation loans
This is a common solution that consumers pursue, but our recommendation is to simply avoid it. When trying to get a credit card consolidation loan, the issuing banks will try and require some sort of collateral. This request will usually be done through that of a home, or some other sort of physical property. We tend to tell consumers that a credit card consolidation loan, is nothing more than a temporary band-aid when considering debt relief. It doesn't really provide credit card debt help as it's only a temporary fix. Although it provides the consumer with one minimum payment, it requires security through collateral and often has similar fees and charges that the original credit card debt had. When consolidating credit card debt, it's always advised to consider these programs in the order in which they were listed.