Debt Decisions, Decisions

Is this your scenario?  You’ve amassed a large amount of credit card debt.  The minimum payments are barely being met and you don’t have a life, because there is absolutely no wiggle room in your finances for it.  You are feeling the pinch and not sure what to do.

If you are facing an uphill battle with your credit card balances, then you know that you’re going to have to make a decision quickly.  You need to decide what measures you’re going to take to do away with this debt demon that’s been demolishing your financial well being.  You’re not sure whether you should do a debt consolidation with all those credit cards or transfer all those credit card balances to a new 0% balance transfer credit card?

Video: Credit and Debt Consolidation

That is a weighty decision you are faced with.  It is always good to consider all your options when you’re deliberating on drastic measures.

Benefits and Dangers of Credit Card Consolidation

Credit card consolidation presents some potential benefits and dangers.  You should research all the possibilities, so that you can make an informed decision based on the facts and not the hype.

credit card consolidation

Benefits of credit card consolidation:

  1. Options are available – you could choose a personal loan, second mortgage or home equity loan.
  2. Reduces many credit card payments to one smaller more manageable payment making it easier for you to pay your payment on time.
  3. balance transfer or credit card debt consolidation?Wipe out your debt, so you can start fresh.
  4. Paid off accounts look good on your credit report
  5. This is a good step toward being debt free.
  6. Current late fees are eliminated.
  7. Collection calls cease.
  8. Interest rate on consolidated loan could be considerably less, saving you money.

Dangers of credit card consolidation:

  1. This doesn’t lend itself to solving the primary cause of your debt – over spending.
  2. If you don’t cancel the credit cards you consolidated, you may get into even more debt – more over spending.
  3. Depending on your credit score, you may end up with an interest rate as high as you had on your credit cards.
  4. If creditors do report your account closed, they may report it closed by them and not by you, which looks negative on your credit report.
  5. Lower payment means it will take longer to pay off your debt.
  6. If you used your home as security, you could end up in foreclosure if you cannot keep up the payments.
  7. May have to pay closing costs, upfront fees, insurance, add-ons and hidden fees.

Video: How to Eliminate credit card debt

Benefits and Dangers of Balance Transfers

Exciting idea, isn’t it, to transfer all those credit card balances into that one interest free credit card?  It is until the infatuation fades.  You discover that you’re charged a balance transfer fee you did not anticipate, and you find out that one late payment could get you into the mile high club, in interest rates, that is.

This is not always the case with a 0% balance transfer credit card.  There are many out there that do not charge for the balance transfer fee; however, there are typically consequences to missing a payment or going over your limit – very high late fees and high over-the-limit fees, in addition to interest rates that soar once you do miss a payment.

If you decide on this route, you’ll want to have great confidence that you will be able to make your monthly payments, and make them on time.

Benefits of Balance Transfers:

  1. No interest for several months – more of your payment applies to actual debt, instead of interest.
  2. Only one balance, instead of many, and one single payment per month.
  3. Many balance transfers offer low interest rates.
  4. Wipes out your debt.
  5. Improves your credit score to have debts paid off.
  6. Convenience checks could be used to pay off car loans or other secured loans.
  7. Often these cards offer a 0% interest on new charges, saving you money.
  8. Significant savings in transferring balances from higher interest rate cards.

Dangers of Balance Transfers:

  1. Could get stuck with balance transfer fee.
  2. May be charged cash advance fees for using convenience checks.
  3. If you close your transferred accounts, these accounts may reflect negatively on your credit report.
  4. Temporary fix to your credit problem – over spending is the reason you’re here.
  5. Repetitive balance transfers will lower your credit score.
  6. High balance on one account will lower credit score.
  7. If you’re late on one payment or go over your limit, your interest rate will jump.
  8. Transferred balance may have a higher interest rate

Take the first step, and stop charging.  Cut up the credit cards.  Make a decision that you and your family deserve better.  Next, consider the possibilities.

You’ll need to weigh your options heavily.  The decision you make could set you on the path to paying off your debt, or it could work against you and you could lose everything you’ve worked hard for.  Make sure the decision you make is the one right for you.