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3 Tips to Find the Best Credit Card Debt Consolidation Options
If you have a lot of credit card debt, it's smart to look into your debt consolidation options.
Tip #1- Figure Out Why Are You in Debt?
Credit card debt is a common source of debt problems, but it is not the only kind of debt. However, if your credit card debt is growing, take a look at your overall debt picture. If possible, you wan to find a solution that addresses all your debt, whether it is medical bills, collection accounts, loans, or credit card debts.
There are a variety of reasons a debt problem can get out of control. Common reasons for growing debt include:
- Loss of income- You ran up credit card debt to make up for a cut in pay, loss of hours, or a job loss.
- Unexpected expenses- You used your credit cards to pay for a medical emergency, car repair, or some other high-priority expense that came out of the blue.
- Mismanaging your money- You simply overspend. It can be easy to focus on making only your minimum payments and avoid paying attention to how much debt you're accumulating.
Tip #2- Make a Detailed Budget
Once you figure out why you are in debt, it's time to focus on whether you have the ability to solve the problem on your own or if you need some outside help.
The best solution for your situation depends, in large part, on how much you can afford to pay each month.
Take the time to make a detailed budget. Determine where your money is going and how much you can afford to put towards paying down your debt each month. Pay attention to both your monthly cash flow and the assets you own.
Resolve Your Debts on Your Own
If you are overspending and you can get your finances under control by cutting back, then you can solve your problems on your own.
Look into balance transfers or apply the snowball or avalanche method for paying down your debts more efficiently.
If you have equity in a home and strong credit, you could refinance your home and pay off your debt at low interest.
Seek Professional Debt Relief Help
You may have a debt problem you can't solve on your own. If that seems to be the case, it's smart to look for professional assistance.
- Credit Counseling- Speak with a credit counseling service and go through a formal review of your finances. If you are struggling with high-interest credit card debt, credit counseling can probably help you get out of debt faster.
- Debt Settlement- If you are in a financial hardship and you're looking for an alternative to bankruptcy, speak with a reputable debt settlement program. Debt settlement offers the lowest monthly payment of any bankruptcy alternative and will get you out of debt in shorter time than credit counseling.
Tip #3- Focus on Your Debt Problem, Not Your Credit Score
Keep in mind this basic rule: It is easier to rebuild your credit than to pay down debt.
Ideally, you want to have strong credit and no debt. But, when you already have a debt problem, it often makes more sense to prioritize paying down the debt above protecting your credit.
Start by determining what your credit score is today. If you are carrying a lot of debt, had a 30-day late payment, or one or more account is in collections, then your score is already damaged. If your score is already low, then you don't need to worry about harming it. You can get a free score at different sites online.
Want to know your credit score? Get a credit report with your credit score for a free trial period.
Even if you have good credit, don't place too high a value on maintaining it, if the best way to get out of debt will harm your score.
You can rebuild your score to a very strong level in less than two years, no matter how damaged it is.
Bills Action Plan
Use Bills.com's 3 tips to finding the right credit card debt consolidation option. Be sure that you:
- Figure out how much you can afford to pay each month towards any debt solution.
- Calculate the savings you can realize by the different debt solutions available.
- Determine if you can get out of debt on your own or need professional assistance.
Dealing with debt
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Each state has its rate of delinquency and share of debts in collections. For example, in Maryland credit card delinquency rate was 4%, and the median credit card debt was $410.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.