If you are unable to meet multiple credit card payments as your interest payments increase or if you simply want to move from a credit lifestyle to a savings lifestyle, it may be time to consolidate your credit card payments so you can erase your credit card debt. Debt consolidation means to bring all of your balances to a single bill and it can be a useful way to manage your debt.
Your first step—before you commit to a credit card consolidation solution—is to understand your current credit. Once you know exactly where your credit card debt stands, you can find and then select a solution that meets your specific needs. As you move towards a zero balance, you can take steps to ensure that you maintain a healthy credit habit to keep balances low and credit scores high as your credit history matures.
The first step is to take stock of just what you owe and what your monthly take home salary is. Start tracking what you owe and what you earn, to get a handle on what's coming in, going out, and how much is left over on a monthly basis.
Know your credit cards: what you owe, minimum payments, and APR
Whether on paper or with a spreadsheet, collect your most recent credit card balance statements and document:
The total amount owed on each card,
The current minimum monthly payments due on each card, and
The annual percentage rate (APR) of each card.
You can also load this information into an online budgeting tool, such as Chase's Budget Builder, to keep on hand for future reference. There are also plenty of budget apps online that are free and easy to use.
Once you have all of this, you'll have a clearer understanding of your total expenses and income, and how much credit card debt adds to monthly costs.
Know your balance: Can you meet your minimum payments? Using your minimum credit card payments, add up each of your monthly credit card bills. Is your monthly bill total larger than your monthly income or does your income out earn your bills? Use your knowledge of your overall balance to select a credit card debt consolidation solution that fits your situation:
There are two suggested ways to attack credit card debt on your own: the snowball method and the avalanche method. If you have tracked your credit card balances, minimum payments, and APR, either method is simple to understand:
The snowball method aims to pay all credit card balances at their minimum monthly payments but then suggests that you add any other available funds to pay off your credit card with the largest balance.
The avalanche method also suggests to pay off all minimum monthly payments, but then directs your additional funds to pay off your credit card with the highest APR.
With either method, when you have fully paid off either the card with the largest balance or the card with the highest APR, you reserve that same monthly payment and direct it at the next credit card in line.