Consolidating Credit Card Debt

Every day that goes by more and more families are falling behind on their credit card payments, many people who have lost their jobs and have not been able to obtain a new position. For some who have already found a job are very behind on their payments. Or perhaps by paying different interest rates with different credit cards is becoming a long term costly strategy. The first step to consolidate credit card debt is to know exactly where you stand right now and establish a baseline from where to work on. Start by obtaining the exact information of the amount that is owed, what interest are you paying for each credit card, the phone number and address for each creditor. Just as important is to obtain a copy of you credit report. It has been established that your first credit report a year is free. Keep in mind however that even though the credit report is free it does not include your FICO score. A FICO score is what lenders use to evaluate your risk level when it comes to lending money.

Consolidating Credit Card Debt

Once you have established a baseline it is time to look at what options might be available for credit card debt consolidation , everyone’s situation is different and each option is designed for specific needs. Beware of companies that might be trying to fit you in a particular group so that their commission rate is much higher.

Depending on the total amount that needs to be consolidated and before looking into debt settlement or debt consolidation companies look into what options are available around you.

Look into applying for a personal loan, if this option is available it can save you a great deal of money in the long run. Depending on your credit the interest rate to be paid will vary, if you don’t have good or average credit consider talking with a family member or friend that trusts and cares about you to cosign the loan for you, this will increase your chances of getting approved.

Can you transfer the balance of the cards to another card with a lower interest rate? Consider talking with a friend or family member to cosign with you.

If you have built up some equity in your home this might be another option available to take a home equity loan or second mortgage to pay off all creditors. Be sure this is a loan you can almost guarantee to pay back, if you have some hesitation or doubt about the repayments then this option may not be for you. The risk of losing your home is high.

Debt Consolidation Program and Debt Settlement Program

What is the difference between the two? Is this a possible alternative?

With debt consolidation programs you work with one company that is responsible for talking with credit card lenders and depending of their legitimacy they should already have a standing relationship with them. They then stop your current credit, lower your interest rates and stop the late fees from continue to accumulate. Now you make the payments to the debt consolidation company and they distribute the money to the other creditors.

Debt Settlement is a lot more riskier however the idea is that you can settle your debt for much less then you owe. If for example you owe a creditor $5000 dollars they might settle for a full payment of $3000 that is $2000 less of the original amount. The problem with this type of program is that in most cases you have to let you credit continue to decline, and accumulate late fees so that you can go to each of your creditors to negotiate the settlement process. There is a higher risk involved because they could choose to sue you before the process comes to a conclusion. Also the IRS considers debt settlement a taxable process. In the previous example you might get taxed on the $2000 dollars you had saved after the negotiating process.

Be very cautions who you decide to work with to consolidating credit card debt. try to use them only as a last resource, most importantly beware of your financial resources and learn to develop good financial money management strategies.