If you are in a significant amount of debt, you may feel as if though you are carrying a heavy burden on your shoulders with no clear way out.
Regardless of the reason as to why you are in debt, there are steps that can be taken to ensure that the repayment of your debt happens as quickly as possible. One common method of dealing with a large amount of debt quickly is debt consolidation.
But what is debt consolidation? What are some ways to consolidate credit card debt with bad credit? Debt consolidation is when you take out one single low interest “loan” to pay off all outstanding debts.
Once the debts have been paid in full using the consolidation loan, you simply repay the debt consolidation loan back. This is usually done with fixed payments over a set period of time.
There are different ways of consolidating your debts, and some may have an effect on your credit score, depending on how you manage your payments. Therefore, it’s important to ensure that you’re not only considering your current circumstances, but also any future endeavors that may require a healthy credit score.
Although some forms of debt consolidation like a balance transfer won’t have a negative impact on your credit score or report, other forms of debt consolidation might.
It is important that you look at your circumstances closely before committing to any specific debt consolidation option.
If you are expecting your accounts to go into collections, consolidating your credit card debt may be your best choice.
Debt consolidation can be a broad term that can embrace several different methods of consolidation. The more popular forms of debt consolidation are as follows:
Best Ways to Consolidate Credit Card Debt
Complete a Balance Transfer to Consolidate Credit Card Debt
A balance transfer is a great way to consolidate credit card debt. If you have paid off a large amount of your debt already, you might want to think about placing all your debts onto a single credit card and only make only one monthly payment thereafter.
Not only can a balance transfer save you a vast amount of money on interest, but it makes tracking and managing your payments much easier.
Most major credit card companies offer balance transfers. Many of these offers even have 0% APR available for the first year. This is a great way to save interest, which in turn lowers your monthly payments.
It also aids those who are focused on clearing their balance as soon as possible, and because of the 0% APR, the whole monthly payment is being used to reduce the debt, not pay interest.
There is also the added benefit that there may be additional perks available with the new credit card when compared to the old card you’re transferring the balance from. Examples of these perks include air miles, discounts for those who use hotels, and much more.
You will want to repay all your debt before the 0% APR offer expires, or else you could be slapped with high interest rates. If you want to learn more about balance transfers, check out our balance transfer article.
It should be noted that there are some limitations on balance transfers, depending on your circumstances and current credit card provider.
For example, it isn’t possible to transfer balances between cards from the same operator. You cannot complete a balance transfer from one Chase credit card to another Chase credit card. The balance must be transferred to another institution such as Citi Bank or Bank of America.
If you’re looking to reduce payments with a lower interest rate interest, then you will need to ensure that total balance is repaid before the 0% period expires.
Even if you’re applying for a credit card that offers a 0% interest rate, this may not always be available. This is because some lenders view some applicants as being “riskier” than others.
If you have less than perfect credit, you may have a hard time getting approved for a 0% balance transfer.
However, even if you are charged an APR percentage right from the start, you could still save big on interest. Just make sure that the interest rate is on the balance transfer lower than the one offered on your current debts.
Some lenders may charge a fee to initiate a balance transfer. How this free is charged can depend on the lender you’re applying with. Some may offer a flat fee, whereas others may charge a percentage of the balance being moved.
The percentages charged for a balance transfer normally range between 3 and 5%. Although this fee seems low, it’s a different story if we are talking about transferring $100,000 worth of credit card debt.
It is therefore imperative that when making an application for a balance transfer you assess any fees, plus any interest you may be charged.
The aim of a balance transfer is to help lower your monthly payments with a goal of reducing the debts. Not taking the various fees and charges into account could mean that in the worst-case scenario, you could be paying more than you were before a balance transfer.
Personal Loans to Consolidate Credit Card Debt
Consolidating credit card debt with a personal loan is very similar to a balance transfer for debt consolidation. You will use the funds from the personal loan to pay off all your debts, and just repay the personal loan after. Again, the goal is to find a personal loan with an interest rate lower than your current debt accounts.
As well as working how much will be needed to pay off your existing debts, you will also need to ensure that the APR is more cost-effective than what you’re currently paying, otherwise, you could find that little changes in relation to the monthly payments.
It wouldn’t make sense to get a personal loan at a 7% interest rate if you are currently paying 5%.
Another consideration that needs to be made is that the APR charged can depend on your credit score. Those who have bad credit may find that the loans they qualify for have a higher APR than they’re used to.
If you find that you are falling behind on debt payments, then a personal loan could be the answer you’re looking for. It’s also important to approach the right professional so you can be sure that you’re being given the right product for your circumstances.
You also must factor in what type of personal loan you plan to apply for: secured or unsecured. Both have their pros and cons.
A secured loan requires to put up collateral, such as a vehicle or property, it does give you more leverage when applying for a loan that offers good interest rates, but failure to meet the repayments could mean that your assets are at risk of being sold off at auction.
An unsecured personal loan means there are no assets being used as collateral to “back-up” the loan. With an unsecured loan, a creditor cannot come and seize your assets, but they can report any missed payments to the credit bureaus.
As well as deciding what type of loan you need, you will also need to ensure that you’re applying for a loan that meets your needs.
For example, if you have missed multiple payments in the past, then you may find that you’re not always able to qualify for personal loans with the lowest rates, whereas those with more adverse credit could struggle to find a loan at all.
You can find personal loans through various online sources, including CrediReady. Although banks and financial institutions do offer personal loans for debt consolidation, it can be hard to acquire one if you already have a bad credit score.
Get a Debt Management Plan
A debt management plan is created by a for-profit service that will help people in extensive debt and are struggling to make minimum payments.
A debt management company will negotiate with your lenders and creditors to help stop your accounts from moving into collections while you repay your balances.
Those who are currently struggling with repaying their current debts may see a debt management plan as the obvious way out, but like other methods, there are pros and cons when using such a plan.
The pros associated with a debt management plan for consolidating credit card debt include potentially reducing the interest you pay on your current commitments, as well as ensuring that any debt is repaid in full at the end of the plan.
In most instances, interest rates charged by your lenders will be negotiated, which will help determine an overall figure that needs to be repaid at the end of the repayment period.
The smaller payments partnered with a final figure means that there is less stress when making repayments, due to only one monthly payment being needed.
Despite the pros, there are also some cons that will mean that a debt management plan isn’t for all debt consolidation situations. This includes the possibility of not having access to any further credit during the debt management plan duration. There is also a chance that some creditors may not agree to the terms of the plan.
Although a debt management plan can help reduce some costs, you may find that you have to stay committed to the plan for several years, depending on how much money you owe.
What If None of These Methods Work?
Although the approaches to debt management listed are ideal for many, there will still be some who are still struggling with debt despite their best efforts.
If your debt really is too much to contend with, then there is the option of filing for bankruptcy.
There are two forms of bankruptcy available to consumers, Chapter 7 and Chapter 13. Bankruptcy is not as straightforward as some may think, as you will need to attend multiple hearings and pay a fee. You will also be required to pay for your lawyer out of pocket if you choose to work with one.
However, if bankruptcy seems like the only available option, then it’s certainly something that’s worth considering, but it can be useful to get some expert advice beforehand. You can get a free consultation with a local bankruptcy attorney here.
There’s More Than One Approach
Due to the many variables that go into a person’s debts, not every option may be right for you. It’s important that you consider all options carefully and obtain expert advice when possible.
Before you start exploring your debt consolidation options, be sure to get your free credit report from the government mandated website www.annualcreditreport.com. Having access to your credit report and score can ensure you are getting a fair interest rate with your credit history.
The Annual Credit Report website is mandated by Federal Law to allow you access to a free copy of your credit report, once per year, from each of the 3 major credit bureaus. This means you can view a credit report for each individual credit bureau every 4 months for free.
When trying to get rid of debt, many may just want the problem dealt with straight away, but the truth is that regardless of the approach you take, it will take time to dig yourself out of the hole of debt.
Therefore, you need to ensure that you choose the path that will have the least impact in the long run, as long as you’re able to contend with the repayments in place.
When checking your free credit report, be sure to check that all the debts and their corresponding amounts are accurate. If they aren’t, file a dispute with the credit bureau that generated the report. The three main credit bureaus can be contacted via the following means:
In some instances, you may need to contact all the credit references agencies to make the changes. It will depend on which credit bureaus have been used, so gaining access to reports from all three providers is the ideal way to keep track of your current score, as well as any inconsistencies that may arise.
Checking your credit report for any errors or discrepancies can help increase your credit score, which can boost your chances of approval for a balance transfer or personal loan.
Filing a Complaint
Although credit reference agencies aren’t operated by the government, those dissatisfied with the service a credit bureau has offered are able to make a complaint.
The reasons for filing a complaint against the three major credit bureaus can include, but are not limited to the following:
- The agency does not respond to your initial request
- The inability to gain access or view to your credit score
- Your credit score has been used inappropriately
If you’re looking to make a complaint, then you can so via the Consumer Financial Protection Bureau. Those looking to make a complaint via telephone can do so via 1-855-411-2732.
If you are buried under a mountain of debt, CrediReady can help. Our nationwide network of trusted and experienced lawyers are prepared to give you a FREE bankruptcy consultation. Take a moment to fill out our inquiry form today to speak with your FREE attorney.