Almost 70% of credit card holders do not use their credit cards correctly. Most of them miss their payments (and have to pay additional late charges), carry balances in their credit cards, exceed their credit limits and accrue a lot of interest on their balances. Eventually, the monthly minimum they can afford to pay ends up being just enough to cover the interest fees for the month. The principle does not decrease and with the addition of other usual charges, the credit card balances only keep increasing.

If you are one of the people in the unfortunate situation of being knee deep in credit card debts, you do have to find a solution immediately. You may have already heard about the commonly pursued solutions of bankruptcy and credit card negotiation. However, there is yet another one that you may wish to consider – credit card debt consolidation.

There are two ways you can go about consolidating your credit card debts. One is to do a balance transfer and the other is to get a credit card consolidation loan. Let us look further into both of these ways as well as their pros and cons to help you decide if credit card consolidation is the solution for you.

Balance Transfer

There are many credit cards in the market that offer you a low or zero interest balance transfer. Often the low APR is only valid for an introductory period which may be anywhere between 6 and 18 months. All you need to do is transfer the balances from your high interest credit cards onto a low or zero interest credit card. That way you can immediately stop dissipating your money on high interest and be balance-free on your high interest credit cards. With the savings, you can then afford to make higher monthly payments on your low or zero interest credit card. As a result, your principle gets paid off and you can be debt free.

Pros

• Huge savings mentioned above.
• You may be able to pay off your debts at a much faster rate.
• It is more manageable to keep track of payments on one credit card than a few. There is less chance of forgetting any payment and paying late charges.
• If you keep up with your monthly payments, your credit history may improve.

Cons

• If you are not disciplined and responsible enough to complete paying off the balances during the introductory period, you may jeopardize your chances of being debt-free. In fact, the interest rates increase quite significantly after the introductory period and you may find yourself in greater debt.
• Doing balance transfers repeatedly, affects your credit history adversely.
• There is usually a 3% fee charged on the balance transfer. As such, it will not benefit you to keep doing balance transfers often.
• There are also those who cannot resist using the current-balance-free high interest credit cards. Often they max these cards out again, ending up in greater debt. If you think you may be one of them, you may want to seek counselling services to prevent such a dire situation.
• If your credit history has already been adversely affected, you may not be able to get approval for the low or zero interest credit card. Or you may not get the approval to transfer the entire balance. There might be a stipulation on the limit you can transfer. Both these situations may make balance transfer an unsuitable solution for you.

Credit Card Consolidation Loan

You will have to apply for a credit card consolidation loan. The interest rate of the loan should be lower than that of your credit cards. With less going to pay off interest and more to pay off principle, you can become debt free.

Pros

If you are able to find a low interest consolidation loan, then the pros are similar to that of balance transfers:

• Savings on interest
• One single bill to keep track of rather than a few.
• If you pay your monthly payments regularly, your credit history will improve.

Cons

• If your credit history has already been severely affected, it may not be possible for you to get a consolidation loan with an interest rate lower than your credit card interest rate. The loan then helps you in no way to become debt free.
• If you are paying lower monthly payments, you will be taking a very long time to pay off your debt.
• Credit cards debts are usually unsecured. It is good if you are able to find yourself a consolidation loan that is unsecured as well. However, if your credit history is not favourable, you may have to resort to taking a secured loan (often against your properties such as your home). This is very risky because if you run into any problems with the payment, you may end up losing your home.

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