Credit consolidation can help you get out of debt faster, but only when it’s used correctly. But how do i use it correctly? Please any ideas.
When traditional monthly payments don’t work, credit card consolidation can be an effective solution to get out of debt fast. You combine credit card debts into a single monthly payment at the lowest interest rate possible. This helps you save money as you pay off debt and it may lower your monthly payments, too.
But you must know credit card debt consolidation is not a silver bullet. It won’t work in every financial situation for every consumer. And when it’s used incorrectly, it can make a bad situation with debt even worse.Best idea is to stop making new charges
The biggest mistake people make after consolidating credit card debt is that they don’t stop making new credit card charges. If you’re trying to pay off debt, you need to focus on elimination. New charges just set you farther back from your goal – it’s like two steps forward, one step back.
Don’t use DIY solutions if you don’t have good credit. In order for consolidation to be effective, you need to reduce or eliminate interest charges applied to your debt. Otherwise, you don’t generate the cost savings you need for this to be an effective way out of debt. So, you need at least a good credit score to qualify for do-it-yourself debt consolidation at the right interest rate. If you don’t have good credit and you try to go DIY, the rate may be too high to provide the benefit you need. Interest charges will eat up every payment you make, making it impossible to eliminate debt quickly or effectively.
Don’t convert unsecured debt to secured debt. Most credit cards are unsecured debt. That means that there’s no collateral in place to protect the creditor in case you default. That’s different from secured debt, like a mortgage which uses your home as collateral. In this case, if you default on your mortgage, the lender will take your home and sell it to recoup their losses.
Some people think home equity loans are a good way to consolidate credit card debt. However, this effectively converts unsecured debt into secured. Now, if you fall behind, you can be at risk of foreclosure.
That’s what happened to a friend of mine, l after her balance transfer solution didn’t work. A creditor advised that she could take out a second mortgage to pay off her credit cards. That just made her debt problems more stressful
When people first consolidate, they’re excited that they finally have a solution to eliminate their debt. So, they’re willing to do whatever it takes to reach zero. However, as time passes, it’s easy to get tired of sticking to a budget and cutting back. As time passes, you slip back into bad spending habits and can start making new charges again. With debt management program clients, we usually see this drop-off around the six-month mark. Keep in mind that enrollment in a debt management program is completely voluntary. However, if you drop out your creditors are likely to restore your original interest rates and can even reapply penalties. Choose a solution that gets you out of debt as quickly as possible.