U.S. credit card debt continues to climb with Americans owing $1.14 trillion to lenders, according to CBS News. That equals about $6,360 to $7,951 on average per person, according to USA Today. If you belong to the 7.18% that has fallen behind on your credit card payments, you might consider loan consolidation or refinancing, but which would work best for your financial situation and credit
Refinancing Debt
The most common way of refinancing debt involves obtaining a low- or no-interest rate credit card that lets you transfer the balances of your other credit cards to it. This provides you with a lower interest rate than on your existing cards and redistributes all the debt to a single card.
The result of this process is that your money goes further faster. By lowering the interest rate, you accrue less additional debt each month. By continuing to pay the same amount you did each month when you had separate cards, you quickly erase your debt, as long as you do not make new charges to the other credit cards or the new one.
Who This Solution Works Best For
For this solution to work, you need a dependable monthly income in the same amount each month and a good credit score. This solution works for those who exhibit self-control by avoiding making new credit charges and who easily stick to a budget. This solution is not for you if you fell behind on your credit cards because:
• you lost your job,
• you have an addiction, whether to shopping, gambling, etc.
• you have variable income
• you can’t live within your means, meaning you don’t earn enough money to pay for your needs without charging to your credit cards.
Consider loan consolidation instead, combined with credit counseling and mental health counseling if an addiction or inability to live within your means caused the problem.
Loan Consolidation
Loan consolidation takes two forms – one through a financial lender, the other through a non-profit. Let’s consider consolidation through personal loan experts like Symple Lending first. In this form of loan consolidation, you add up all of the existing credit cards and loans you have, then take out a consolidation loan in that amount and pay them all off immediately. You then repay the loan, which typically has a repayment period of two to five years.
Who This Solution Works Best For
This solution works if you want to get out from under debt quickly, and you have a regular monthly income to make repayments. You’ll also need a good credit score. Most companies like Symple Lending that offer this type of loan pre-qualify you using a form that makes a soft credit hit, not a hard one.
Non-profit Loan Consolidation
The non-profit method of loan consolidation requires you to close all of your credit cards. By registering with the non-profit program, you also agree to take out any other credit cards while in the program. In exchange for this, the non-profit contacts all of your creditors to re-negotiate the amount you owe and a new, lower interest rate, according to Investopedia. Each month, you make a single payment to the non-profit, which distributes the payments to your creditors. This enables you to quickly pay off all of your credit cards. You can include some loans in this program, but not student loans.
Who This Solution Works Best For
You’ll need a stable regular monthly income for this solution to work. A person with any credit score can use it though. If you have already ruined your credit score, then turn to this solution. If you feel that you cannot manage to stop making charges or will try to cheat by taking out other credit cards while in the program, many of these non-profits also provide financial counseling. You’ll need to find a different source for your psychological counseling to get to the bottom of why you spend money the way you do and over-utilize credit.
In Summary
You can get runaway credit card debt under control. Choose the solution that works best for your situation. Use either a balance transfer credit card, a consolidation loan, or a non-profit consolidation.
