- 4 min read
Credit Cards - A Gift?
Credit cards are a useful tool. Who doesn’t use one? Online purchases, reserving hotels, retail purchases, paying bills, and taking out cash are some of the most common uses. However, credit cards are not gift money. If used to pay for items, beyond your means, you can run up large credit card debt that comes with high interest charges.
There are special debt consolidation programs for credit cards, including:
- Loan Consolidation
- Credit Consolidation and Debt Management
- Debt Settlement
Tips to help Use and Consolidate Credit Cards
Make sure that you have the best cards available and you are properly using the cards. Here are a couple of tips for debt consolidation for credit cards:
- If your credit cards carry high interest rates, then look into a balance transfer.
- If you have equity in your home and good credit, then consolidate your credit card debt through a cash-out mortgage refinance.
- If you have good income and a positive cash flow, make accelerated payments on your credit cards. Don’t pay just minimum payments, as the payoff time will be long and entail high costs. Use the avalanche or snowball tactics to pay faster.
- Make a personal budget so you pay your bills on time. Create a rainy day fund, so you don’t use your credit cards to pay for emergencies.
#1: If you are unsure of the best debt relief program for your situation, then check out Bills.com innovative tool, Debt Coach.
What Can You Afford?
The amount of money you can afford to pay each month will help determine which debt consolidation program for credit cards is best for your situation. In order to help you find the right program look at these three scenarios
- You have good credit and can afford high monthly payments.
- You can afford minimum payments.
- You are struggling or cannot afford to make minimum payments.
You Have Good Credit and Can Afford Fixed Monthly Payments
If you have good credit and want to consolidate your credit card debt into one loan, then an unsecured personal loan is a good option. Big banks like Wells Fargo, as well as credit unions offer personal loans. Interest rates vary, starting at about 10.8%.
If your credit cards carry higher interest rates then a personal loan, loan consolidation can be an effective debt consolidation for credit cards solution. Another advantage is that you pay off your loan in monthly installments, avoiding the minimum payment trap. Make sure that you don’t fall into the cycle of paying off debt and running up new credit card debt.
You Can Afford Minimum Payments Only
If you can afford your minimum payments, but pay high interest charges and lack the discipline to maintain fixed payments, or stop using your credit cards, then Credit Counseling and a Debt Management Plan (DMP) is a good alternative.
First, a counselor will go over your budget and financial situation (income, expenses, assets and debts) to determine if a debt management program is best suited to your needs. There is a strong emphasis on financial education.
The second stage is a DMP program. The DMP Company negotiates lower fees and interest rates. Instead of making payments to your different creditors, you make one payment to the DMP, who then pays off the various creditors. There is an upfront fee as well as a monthly charge for their services.
You are Struggling or Cannot Afford to Make Minimum Payment
Debt settlement is a good debt consolidation for credit card solution if you are struggling to make your minimum payments or already fallen behind in payments. Collection Agencies may already have sent letters of made calls. If you leave your debts alone, then lawsuits, court judgments, wage garnishments, bank levies, and liens will soon follow.
Before signing up with a debt settlement company, make sure that you receive a free consultation that examines your financial situation and reviews all your debt consolidation for credit card options. In a debt settlement plan you stop paying your credit card debt, and instead make payments into a special designated account, in your name and control, (make sure it is in a FDIC account). The debt settlement company then negotiates a settlement with your creditors, often for about 70% of your enrolled balances, including fees (and excluding additional interest charges that accrued and are wiped out). A reputable debt settlement company takes a fee only upon a completed negotiation.
#2: If you are struggling with your credit card payments, then contact one of Bills.com's pre-screened debt providers for a free no-obligation debt relief quote.
Dealing with debt
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q3 2023 was $17.291 trillion. Auto loan debt was $1.595 trillion and credit card was $1.079 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.
The amount of debt and debt in collections vary by state. For example, in Texas, 37% have any kind of debt in collections and the median debt in collections is $1997. Medical debt is common and 19% have that in collections. The median medical debt in collections is $835.
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.