Credit card debt consolidation is one of the best ways to take control of your multiple credit accounts. Sometimes, debt payment affordability is not the issue. There are times when you simply have to reorganize your debts so it is easier for you to pay them off.
When you have a lot of credit cards, it can be challenging to monitor all of them. You might not have noticed your balances ballooning every time you opt to pay just the minimum amount on your statement. According to statistics, high-income earners are more likely to pay only the minimum payment requirement on their billing statements. This is actually one of the worst things you can ever do if you hope to get out of your credit card debt. It will not only take you a long time to completely pay off the debt. It will also cost you a lot of money in terms of the interest amount, charges, and fees.
When you are already neck-deep in debt obligations, you need to make some serious changes with the way you use and pay off your credit card. For one, you have to make sure that you do no just pay the minimum amount every time. This will allow lenders to add penalties and other fees on your monthly payment which adds up month after month.
This is why credit card debt consolidation is such a popular repayment program for people trying to get ahead of their debt problem. Before you dive right in, you need to understand the advantages and disadvantages of the program.
Pros and cons of consolidating credit card debt
There are a couple of reasons why you should enroll in a debt consolidation program now. It usually varies depending on your specific debt situation and financial goals. To get a better understanding of this debt repayment strategy, here are the pros and cons of using credit card debt consolidation.
Part of the reason why you are choosing debt consolidation to manage your payments is that it gives you the upper hand in addressing your financial obligations. There are two ways for this to happen.
- Better financial management. First of all, consolidating your debts will help you manage your overall finances better. When you have a lot of credit accounts, you can easily forget about some of your payments. This could make you late on payments and can end up increasing your balance unnecessarily. It can also affect your credit score negatively. But if you consolidate your multiple credit accounts, you only have to monitor one debt. It is easier to track and it gives you the freedom to focus on other things – like growing your debt payment fund.
- Take advantage of a lower interest rate. Credit cards are notorious for having sky-high interest rates. If you have a couple of credit cards with high-interest rates and you are already behind on your payments, credit card debt consolidation can be a big help. Transfer existing credit card debts to a card with 0% rates see your montly payments go down. This will help you save on the overall amount that your debts will cost you.
As much as there are benefits to using credit card debt consolidation, there are also a few things you need to watch out for.
- Falling into a false sense of debt freedom. Once you consolidate your credit card debt under one account, you suddenly see your existing cards to have available balances on them. This can easily give you a false sense of debt freedom. But the truth is, you still have the same amount of debt – possibly even higher if you consider the fees and charges that you initially have to pay for. Do not forget that after consolidating, you have yet to start the repayment plan. You just simplified your debt but it is not yet paid.
- Higher chance of recurring debt. If you clear up your credit card balance but you did not address the underlying issues why you were in debt in the first place, there is a good chance you will be in debt again. This is because you will still encounter the same triggers and temptations as you move forward. If you cannot get past them you will start accruing debt again. This is one of the realities of debt consolidation you have to worry about.
How to make credit card debt consolidation effective
Now, you already know that credit card debt consolidation is a really great way to solve your credit issues. However, it still involves a lot of hard work. You cannot just be careless about it. You need to have a plan to make sure that it will really lead you to debt freedom. Here are a few things you can do to make the program more effective.
Stay away from spending triggers
CNBC shares that consumers are inclined to spend more when the economy satisfaction increases. However, what needs to increase when the economy is doing good are your savings. If your finances are improving, do not increase yourlifestyle and spending. Save more for the future and pay down your debts more aggressively.
Stick to your budget
When going through a debt consolidation program, it is important that you pay close attention to your budget. You need to make sure that you are not only paying everything on time. It is also important for you to avoid adding to your expenses. Get as much extra money as you can so you can increase your debt payments. The more you can pay each month, the faster you can get out of debt.
Follow these two simple tips and you will find your credit card debt consolidation effort to be more fruitful and effective.