Consolidating credit card debt, if done correctly, can improve your financial situation significantly. According to statistics, credit card debt reached a new high and unfortunately, late payments are rising as well.
The truth is, the rise of consumer debt is not always a bad thing. Sometimes, it is a sign that consumer confidence is rising. This can be caused by a stable job market or stronger confidence in the economy. However, if the rise in debt is also marked by an increase in late payments, then that is a different matter. When people cannot pay back their debts, that means the financial situation of households are not as strong and secure as it should be.
If you are struggling with your credit card debts, you need to do something about it. Fortunately, there are various options for you to get out of debt. One of them is consolidating credit card debt.
Consolidating credit card debt leaves room for financial growth
When you consolidate all your credit card debts, you are doing more than just paying it off. You are also improving your financial situation and giving enough room for growth. There are three things that can happen when you use debt consolidation to solve your credit card issues.
Lowers the interest payment
How it improves your finances: It helps you save money.
Did you know that consumers are paying $104 billion on credit card interest and fees alone? Credit card debts are notorious for having high-interest rates. While loans are offered at different rates, it will probably still be lower than what you have on your credit card. If you use a loan to consolidate your multiple credit card balances, you will end up with a lower rate. This will allow you to save a lot of money on the overall interest that you have to pay for the whole debt. With what you are saving, you can choose to either increase your monthly payments or use it to reach a savings goal.
Predictable monthly payments
How it improves your finances: Makes budget monitoring easier.
A credit card bill does not always have the same amount month on month. This makes it a bit challenging to budget for the monthly payment. There are so many factors affecting the amount that will be billed to you. There is the interest rate, the finance charges, and other fees associated with your use of the credit card. Of course, you have the option to pay an amount higher than the minimum requirement – but even then, don’t you wish you just have a fixed amount to consider each month?
If you want consistency, consolidating credit card debt might be the best option for you. When you know how much you need to pay each month, it is easier to manage your debt and the budget that will fund your payments.
Fixed repayment period
How it improves your finances: Allows you to set financial goals for the future.
This is in connection with the last one. If you have fixed debt payments, it is easier to gauge how much extra money you get each month. This will make it more convenient to make plans for the future because you know how much you can save. Not only that, you have a definite date of when your debt payments will end. You can plan your future saving goals around the time you completely pay off a debt. What was once used as debt payment can now be used to reach new goals that can improve your financial position.
As you can see, consolidating credit card debt will not just be a step towards debt freedom. It can also be a huge step toward a more secure financial future.
How to successfully pay off credit card debt
Now that you understand how beneficial it is to use a loan to consolidate credit card debt, there are a couple of things that you need to remember to completely achieve debt freedom.
- Stick to your debt relief plan. Whatever you have chosen to use as your debt relief plan, make sure you stick to it. If you picked consolidating credit card debt, you need to follow through with your decision. Make sure the loan that you got will only be used to pay the multiple credit card accounts that you have. Do not give in to the temptation to use it for something else.
- Hold off using the card for new purchases. The zero balance on your credit card can be very tempting to use. You have to learn how to control your spending urges. If it helps, keep your credit card where you cannot easily get it. The only time it is okay to use the card is after you have paid off the loan you recently borrowed.
- Increase your credit score to enjoy lower rates. If you pay your dues without being late, that can already do wonders for your credit score. Make sure you do not falter in your payments because that is like hitting two birds with one stone. You are paying off your debt and building your credit score at the same time.