Credit card mishandling can cause wreak havoc on your financial health. If you miss the due date, interest will be charged every day. Having multiple credit cards can be challenging to manage if you are looking for ways to make affordable payments. Here comes a credit card consolidation.
It combines the outstanding balances of multiple credit cards to be paid down at a lower interest rate. However, it is a lengthy process because a lender will check your affordability by running a hard credit check that can pull your credit score by a few points. There are several factors to bear in mind at the time of consolidating your credit card balances.
Create a spending budget plan for card consolidation
If you are looking to consolidate your credit card balances, you may have fallen behind the due dates. A lender requires a good credit score, but they can accept applications for bad credit people too. At the time of combining your balances, you should see the interest rates you will be charged.
It is worthwhile only if it helps save money. Find out what monthly payments you will be offered and if you have the capacity to pay that large amount every month. Take into account the contingencies as well.
See if you can find a 0% APR deal
Balance transfer seems to be the best way to consolidate outstanding credit card bills. Most lenders usually provide this option, but it comes with a specific interest rate, but a few lenders also provide a 0% APR scheme.
You can save a lot of money by opting for this scheme because you do not have to pay interest until the APR promotion expires. As soon as it comes to an end, market interest rates will be levied for the rest of the payments. It is crucial to check whether you will be able to pay off the whole balance within a 0% APR period. Try to clear the whole balance within this promotion offer.
Take out a personal loan
To qualify for a 0% APR deal, you should have a decent credit report. No lender will approve your application for this scheme if your credit history is not stellar. You can take out a debt consolidation loan with bad credit.
It is a personal loan used to pay back all of your credit cards’ outstanding balances. After clearing dues, you will have only the person to pay off. Payments will be divided over a period that makes it more manageable.
If you have only this option, consider researching to get the most competitive interest rates. They may vary by lenders, so compare deals before opting for the one. Other associated fees can also add up to the cost.
Some lenders offer consolidation loans at fixed interest rates while others at variable interest rates. Choose a deal with a fixed interest rate. Take note of the length of the loan. If the loan term extends, like in the case of long term loans with no guarantor, more money will go toward interest in total. A shorter length may increase the size of monthly payments, but it will help save a lot of money.
Manage your expenses
After consolidating your credit card balance, you should be careful about your spending. Try not to make a purchase with a credit card until your old balances are fully paid off. Otherwise, it will further affect your credit score and may push you deeper into debt.
Budgeting can help manage your spending. Try to make all purchases with cash and avoid taking out a new loan unless you have settled your credit card debt.
Choose a debt management plan
If neither option seems perfect, you should look for a debt management plan. You can consolidate all of your debts.
This plan allows you to pay off at lower interest rates. It is not a loan. It is instead a type of financial help.
A debt management plan provider will negotiate interest rates with your creditors, and you will have to pay a small number of fees for this favour.
The bottom line
The consolidation of credit card balances can help you avail of lower interest rates to pay off outstanding dues. However, you should still need to do some research. Look for deals available to you, so choose the most affordable one. If you cannot make a decision, you should opt for a debt management plan.