Bill, I am finishing college in December 2007. As exciting as this is for me, I have abused my credit cards and have finally admitted to myself that I have a problem. I currently owe around $13,000 in credit card debt. I am current on all my bills but I cannot afford to pay a lot more than the minimum. I feel very hopeless. Will bill consolidation be my best bet? If I do consolidate my bills how will it affect my credit score in the future? Or should I apply for an unsecured loan with a low interest? Please help.
Congratulations on your upcoming graduation! Completing your college education is a major accomplishment for both your personal and financial future. Unfortunately, with the rapidly growing cost of a college education, many students like yourself find themselves overburdened with student loans and credit card debt by the time they reach graduation.
However, you do not need to be despondent about your credit card debt. There are several options available to assist you in freeing yourself from the burden of high interest credit card debt, which I will discuss in detail below. If you follow the links below, I can put you in contact with a company that may be able to assist you in resolving these debts.
Very quickly, to help solve your debt problems get a free debt consultation with one of Bill's approved debt help partners.
Also, if you have student loans I would highly suggest consolidating your college student loan debt, which can extend the duration of the student loans allowing you to cut your monthly payment. Be sure, though, to pay them off as quickly as you can once you start making money and have paid off the credit card debt. If college student loan debt consolidation is something you are seeking, you can apply here.
Now, back to your credit card debt: Most debt consolidation loans depend on the borrower owning a home on which the consolidation loan will be secured. Being a college student, I assume that you do not yet own a home. Therefore, a home equity loan to consolidate your debts is probably not an option. Unsecured debt consolidation loans are available to consumers, but your ability to find one that will actually save you money depends greatly on your credit history. Unsecured consolidation loans demand much higher interest rates than their secured counterparts, because without the security interest in your home, lenders are taking much more risk in extending the loan. If you have good credit, you may be able to find an unsecured consolidation loan that will save you money. But if you have credit problems, the monthly payments on your consolidation loan may actually be higher than your current payments on your credit cards.
If you are able to find a consolidation loan, it should not have a significant effect on your credit score, as you are not incurring more debt, but moving it from one account to another. If you consolidate your debts, you should close most of your credit accounts to prevent the temptation to charge the cards back up again. Only leave two or three of your older accounts open, as their long payment histories will have a positive influence on your credit score. To read more about debt consolidation loans, I encourage you to visit the Bills.com Debt Consolidation Loan Resources page.
Another option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, thoughÂ–they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently struggling to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.
Depending on your income and amount of debt, one of the several options I have described above may be able to help you. I encourage you to explore the Bills.com Web site, to read more about these and other options available to help you with your debt.