How to Consolidate Credit Cards rightly!!

How to Consolidate Credit Cards

By T.A. Workman http://www.ehow.com/members/DS_T.A.Wo14930.html

How and when to consolidate credit cards and avoid unfavorable lenders.

Americans often open credit cards with the best intentions. The card will only be for emergencies. The “freebies” are worth the extra plastic in the wallet. A credit card is needed for travel. This line of thinking has lead millions of Americans down the road to credit card debt and the need for consolidation.

About Americans and their Debt
In 2004, MSN reviewed Americans and their $1.9 trillion dollar debt including credit card debt. Add mortgages to that figure and the U.S. was seriously in arrears. After research, the MSN author made the comment “It’s not clear exactly where the debt trend will take U.S. consumers or the U.S. economy.” Fast forward to 2008 and the majority of the nation knows the answer to that question. The United States enters a mortgage crisis in 2007 spiraling into a recession in 2008. The word “bailout” becomes a household word.

The unusually low interest rates offered early in the 21st century prompted Americans to take advantage of their new-found credit worthiness. Banks were quick to approve loans and credit card companies dealt out cards to those not previously accepted. The result─ almost half of U.S. families spent more than they earned, the average household credit card debt rose to $8,000. and bankruptcies doubled.

Credit cards, in general, represent an unstable form of household credit. The average consumer, not savvy in financial language, can quickly become absorbed in interest rates as high as 19% or more. This reality is even more predictable for the consumer with a poor credit rating; if they desire a card, a high-interest card is usually their only choice.

When to Consolidate
Consolidation is not the only option in managing credit card debt. When (or if) to consolidate is not dependant on a dollar figure, but on the individual’s personal situation. Some people have the ability to dig themselves out of debt using other methods. Getting a second job, negotiating with the credit card companies and transferring balances can work if done correctly.
Contrary to popular belief, credit card companies are not all out to keep consumers in debt. They want their money and will sometimes negotiate to get it. Instead of just paying the minimum balance, never seeing the overall total decrease, advisors recommend negotiating a lower interest rate or payoff with the company. Some companies will deactivate the card when asked allowing payment of the balance at a reduced rate.

Zero interest credit card offers have their benefits to the dedicated person wanting to alleviate credit card debt. These cards normally offer zero interest for about six months (for example). If it is feasible to pay off the card in six months, this is a good option. However, a missed payment often instigates immediate interest charges. People need to read the fine print. If the idea is to transfer the debt again in six months, consumers should not consider the zero interest option. Multiple cards and transfers will hurt overall credit scores and there are charges associated with transferring balances.

What about the person who’s situation doesn’t allow for these other options? Individuals with significant loss of income, completely unmanageable balances and poor budgeting skills may not be able to create their own debt management plan. These are the people lying awake at night fretting how they will get out of debt and considering bankruptcy. For these individuals, it is time to get help.

How to Consolidate
Conducting an internet search with the words “debt consolidation” reveals overwhelming hits; page after page of companies willing to “help” consumers get out of debt quickly. There are dangers lurking among the legitimate offers. Companies with high up-front fees and interest rates lie in waiting for the unaware consumer. Simply jumping onboard with a loan consolidator isn’t the first step.

The National Foundation for Credit Counseling, a non-profit organization, certifies agencies dedicated to assisting debt-logged consumers at free or reasonable rates. Their advice, look for a credit counselor not a loan company and try to stick to the non-profit 501(3)(c) organizations. If a debt relief agency acts to quickly (without hearing the entire situation) or promises too much, they’re probably not a good option. A solid organization will want to hear about all the debt and take time to personalize a plan.

A good debt relief provider will state any fees up front and apply 100% of client’s payments to their debt. The first step is normally counseling followed by a debt management plan (DMP) if necessary. These firms can negotiate payments with credit card companies and arrange for consolidation resulting in one monthly payment.

Piling debt onto one credit card or taking out other high interest loans is usually a bad option. Organizing debt means deciding what to pay first and how to pay it, not just lumping it all together. The consumer facing serious debt needs a qualified credit counselor.

Credit Card Considerations
The first words of advice from the general public about credit card debt is “cut up the cards.” This may stop the immediate bleeding, but life without a credit card is definitely a challenge. Buying airline tickets, reserving hotel rooms and shopping online are all functions requiring a credit card to avoid a large hassle.
Certainly there are some people who should not own credit cards. It may be a hassle for alcoholics to avoid alcohol, but they do it. Those who are untrustworthy with credit cards should avoid them. After all, cash is still accepted.

The person deciding to take on a credit card, needs to carefully consider their purchases. Discipline is a necessary tool. Swiping the card is easy; paying the bill may not be. Buying consumables like groceries on a credit card is usually a bad option. Nobody wants to pay interest on their loaf of bread. Buyers should think about each “plastic purchase.” How many other things might that money buy? How many hours will a person have to work to pay off the purchase?

A wallet full of credit cards isn’t a status symbol. Most people need only one or two cards for emergencies and travel. Department store cards may offer up-front discounts but their rates are usually less desirable than a major credit card. Consumers are advised to stick to a major credit card or two and relinquish the “chain of cards” in their wallet.

Resources:

http://moneycentral.msn.com/content/SavingandDebt/P70581.asp MSN on American Debt

http://www.nfcc.org/ National Foundation for Credit Counseling

http://finance.yahoo.com/banking-budgeting/article/105464/Make-Peace-With-Your-Plastic Yahoo Fin

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