How Credit Card Consolidation Programs Work

Do you feel overwhelmed when all of those bills show up at the end of the month? Are you tired of struggling to make consistent credit card payments? One way to reduce stress and anxiety is to reduce the number of credit card payments. Understanding how credit card consolidation programs work is one way to reach that goal and lower stress levels.

To that end, here’s a review of how credit card consolidation programs function.

What is Credit Card Consolidation?

Credit card debt consolidation programs combine several credit card balances into one. This strategy makes payments more convenient and predictable. Also, if the new payment is at a lower interest rate than the original balances, the total interest cost is lowered and the length of the payoff period is shortened.

Choosing the best method for consolidating debt depends upon several factors. Credit scores, salaries, and the amount of debt owed often dictate determine the best method.

Options for Consumers with Acceptable Credit Rate

Credit card refinancing means transferring debt to a credit card with little or no interest for a particular time. Credit card companies rarely require collateral for this option. However, the introductory rate will run out at the end of the specified time, and some companies charge balance transfer fees.

Financial institutions offer unsecured loans for credit card balance transfers. Some institutions may send payments directly to creditors. Often, banks and others do not require collateral, and these loans usually have a fixed payment amount and regular schedule.

Home equity loans and lines of credit allow homeowners balance transfer options. However, any time a consumer uses their property for collateral, there is a risk of losing the home.

Some retirement plans, such as 401(k)s, contain lending capabilities. The downside of retirement plan loans is the large penalties imposed if borrowers do not make regular payments. Advisors usually consider retirement plan loans a last resort because of the risk of losing critical retirement funds.

Options for Consumers with Sub-Par Credit Scores

Debt management companies offer credit card consolidation programs that roll several credit card payments into one. This method may be the best option for consumers with less than acceptable credit ratings.

Additional Consolidation Options

Debt settlement companies ask creditors to negotiate the amount of debt. Credit card consolidation programs offered by debt settlement companies is most appropriate for consumers with over $10,000 in debt. One advantage of debt settlement is a total balance reduction. If the debt settlement company reduces the amount of the balance owed, the consumer gets out of debt faster.

Which is Right for Me

A number of varying factors will impact choosing a credit card consolidation plan. Consumers with a good income and acceptable credit rating have more options. The amount of debt also plays a role. Also, credit card and debt consolidation work best if the new interest rate is lower than the interest rates on the previous credit cards. Consulting a debt management professional can help consumers wade through the many available choices.

Overwhelming credit card debt is a nightmare. But understanding how credit card consolidation programs work is key to ending the nightmare. For many consumers, credit card consolidation shows a pathway out of debt and adds hope for a financially sound future.