If you are having trouble making ends meet, you are not alone; the average American has $8,000 in credit card debt. Whether the issue is a job loss, emergency or overspending, a financial crisis happen to everyone at some point. When this happens, credit cards are frequently there to pick up the slack, at least for a while. The question is when you get back on your feet: do you pay off your credit cards with a debt consolidation or just pay it off yourself?
Credit Card Debt Consolidation
When it comes to paying off your credit card debt, it is important to understand your options so you can make an informed decision about which option will work best for you. Credit card debt consolidation is one way to go. Consolidating credit card debt involves transferring all of your credit card debt to one credit card or taking out a loan of some sort, such as a home equity loan, to pay off all your credit card debt.
Advantages of Consolidation
Credit card debt consolidation allows you to save on interest in that the interest rate you get by taking a loan or transferring your debt to one credit card is typically much lower than what you are paying before consolidation. Moreover, the lower interest rate combined with a single payment means that your monthly payment obligation is commonly less after consolidation or, if it remains the same, allows you to pay more on the principal each month, meaning you can be free of your debt sooner.
Disadvantages of Consolidation
While credit card debt consolidation carries many benefits, there are also several disadvantages. Keep in mind that if you transfer all your debt to one credit card, your credit utilization for that card will be high and your credit score negatively impacted as a result; when your credit utilization is over 35 percent, your credit score will take a hit and if you are close to your spending limit, that impact will be even greater. If you take out a home loan or other personal loan, be aware that, in 70 percent of cases, the borrower ends up having just as much if not more debt two years after consolidation.
Consolidation Alternatives
Of course, you do not have to use debt consolidation to pay off your credit card debt. You could try and settle your debt, ask your credit card company to work with you to set up a payment plan you can manage or apply for a personal loan from your bank, credit union or other lender to pay off the balance of the card. You could also try and pay off the cards yourself over time. The latter option can be difficult, especially at first, but working to pay off your credit card debt yourself can make you debt free in less time. Not only do you have the option of paying as much as you are able each month (above the minimum payments) but, when your credit card balance is high, it prevents you from charging more. Start by developing a budget you can live with. If your income just isn't stretching far enough, contact your credit card providers: they may be willing to offer a modified payment plan, settle your debt or give you extra time to pay.
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