Can I Use Debt Consolidation Without Closing Credit Cards
Yes, although it depends on your situation. If you have good credit and a limited amount of debt, you probably wont need to close your existing accounts. You can use a balance transfer or even a debt consolidation loan without this restriction.
Getting a balance transfer credit card never comes with restrictions. If you get approved for the card, the creditor will not require you to close your other cards. And even with a debt consolidation loan, you may only face an account closure restriction in some cases.
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Work With A Nonprofit Credit Counseling Organization
can review your entire financial situation and work with you to create a plan to tackle your financial challenges. They give advice about credit issues, budgeting, money management and debt management.
If you work with a credit counselor, its important to research the organization before you get started. Check with your state attorney generals office and consumer protection agency to ensure its reputable.
Pros: A credit counseling organization may work with your to set up a debt-management plan on your behalf, which requires you to make a single monthly payment to the credit counseling organization each month. The organization then uses the money you provide to pay your creditors. Your credit counselor may also work with your creditors to negotiate lower interest rates or waive certain fees.
Cons: Some credit counselors may charge a fee for some of their services, and you may have to agree not to apply for new credit or use your existing credit if you participate in a debt-management plan.
Dont Cancel Any Credit Cards
Millions of Americans have problems managing debt, and they get into trouble because credit cards are so easy to obtain and widely accepted. After obtaining a debt consolidation loan and bringing those cards to $0, many people instinctively go to cancel their accounts. This is an understandable instinct, and a seemingly rational step. Tip: Dont do it!
If you cancel all the credit card accounts youve just consolidated, your available credit will shrink considerably. This will affect your credit utilization rate almost immediately and lead to a lower credit score. If you expect to use credit in the near future to make an important purchase, such as a home or a car, then canceling your credit cards could make this impossible. In any case, you never know when youll need your credit for something, so dont do anything intentionally that could limit your options.
You may also need your credit cards for an emergency, too, at least initially. If an unexpected event occurs, and you dont have insurance coverage or the cash on hand to cover the expenses, how will you pay for it? Your only option may be to use your credit cards. While this isnt optimal when it comes to paying off your debts, it may be your only choice. A bad option when something terrible happens is better than no choice at all. So, keep those credit cards open for now. You should also start building an emergency fund if you havent done so already, which well discuss a bit later.
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Will Consolidating Your Credit Card Debt Reduce Your Interest Rates
One of the main benefits of consolidating your credit card debt is getting a reduced interest rate. Reducing your interest rate allows you to lower your monthly payment and, hopefully, pay off your debts sooner. But if you can’t lower your interest rate with a consolidation loan, then it’s probably not worth the extra cost and fees you’ll incur consolidating.
When You Should Seek Debt Relief
Consider bankruptcy, debt management or debt settlement when either of these is true:
You have no hope of repaying unsecured debt within five years, even if you take extreme measures to cut spending.
The total of your unpaid unsecured debt equals half or more of your gross income.
On the other hand, if you could potentially repay your unsecured debts within five years consider a do-it-yourself plan. That could include a combination of debt consolidation, appeals to creditors and stricter budgeting.
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Why Would Someone Want To Consolidate Their Credit Card Debt
There are countless reasons why someone might have racked up an unmanageable amount of credit card debt, from irresponsible spending to unexpected expenses. When life happens, sometimes we need to turn to the easiest and most convenient form of borrowing money, our credit cards. Debt consolidation is one of the best options for those who have overused their credit cards, regardless of the reason. Here are some of the most common reasons why someone might want to consolidate their credit card debt.
- To simplify their finances by reducing the number of monthly payments they need to keep track of
- To get a lower interest rate and save money
- Because they can no longer afford to carry the debt anymore
- As an alternative to more drastic options like consumer proposal or bankruptcy
- To get out of debt quicker
Will A debt consolidation loan look bad on your credit report? for the answer.
When You Shouldnt Use A Personal Loan To Consolidate Credit Card Debt
Using a personal loan to consolidate your credit card debt isnt always the best option for everyone.
Rathner, from Nerd Wallet shares, If you dont have good or excellent credit, you may not qualify for a personal loan with an interest rate thats lower than what your cards already charge you. In that case, a personal loan wont help you save on interest.
Greg Mahnken Credit Industry Analyst at adds, If you have good credit and can take advantage of a credit card offering an introductory 0% APR balance transfer, you could save even more than with a personal loan.
If you can pay off the cards full balance before the transfer offer period ends, you can avoid paying interest altogether, which isnt possible with a personal loan, Mahnken elaborates.
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Using The Debt Snowball Strategy
First, be sure that youve budgeted enough to cover the minimum monthly payment for every debt. Now, arrange the debts by balance, from smallest to largest. Disregard the interest rate on each.
Every month, put the extra money you budgeted for getting rid of debt toward your smallest debt even if you are paying more interest on a different one. Once the smallest debt is repaid, take the entire amount you were paying toward it and target the next-smallest debt. Keep knocking off debts and then diverting all the freed-up money toward the next debt in line.
Heres how it could look in real life: If you have a hospital bill for $1,200 that the hospital is allowing you to pay interest-free, and two credit card bills for $5,000 and $3,000 , youd pay the hospital bill first. Thats right youd pay the interest-free loan before you paid those that accrue interest.
This can make numbers people crazy, because it usually saves time and money to pay highest-interest debts first. The debt avalanche method is a better fit for them. But if you need to front-load your payoff plan with early victories in order to stick with it, snowball is for you.
If you choose the snowball strategy and your high-interest debts are also the largest, dont ignore opportunities to find lower rates, especially if your is climbing. You may be able to transfer a credit card balance to a lower-rate card or find a debt consolidation loan.
Will It Take Longer To Pay Off Your Debt If You Consolidate
If you extend your repayment term by taking out a consolidation loan, it might take you significantly longer to pay off your credit card debt. While it could be nice to have a more manageable monthly payment, you’ll pay more interest over the life of the loan. Review the terms of any consolidation loan carefully before deciding that it’s the right choice for you.
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What Is A Preferred Credit Card
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Your Credit Card Debt Consolidation Options
When it comes to consolidating your credit card debt, you have several options all of which can help you regain control of your finances and get on track to a better, debt free future.
Debt Consolidation Loan
Probably the most common form of credit card debt consolidation is an unsecured personal loan . Depending on how much credit card debt you have, you can apply for an unsecured loan to pay off the balances you carry on your credit cards. For those with either bad credit or a large amount of credit card debt, this option may not be the best choice for you. One of the most important parts of debt consolidation is getting approved for a lower interest rate so that more of your hard-earned money is going toward actually paying down your debt instead of toward interest charges.
Unfortunately, the fact of the matter is, if you want to apply for a large unsecured loan with a low-interest rate, to pay down your credit card debt, you need to have an above average credit score. Keep in mind that this is not the case for all unsecured loans. We just want to make sure that you understand that if youre looking to apply for an unsecured loan of $30,000 or more and you have less than great credit, you will more than likely have some difficulty getting approved.
Debt Management Program
Youll make your monthly payment to your credit counsellor who will then distribute the money to the appropriate credit card company based on how much you owe and the agreement you came to.
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When Do Credit Cards Report
Category: Credit 1. How Often Do Credit Card Companies Report to Credit They should report monthly, preferably on the billing cycle date. For credit card companies, this is usually the day that they issue your charges for the Mar 22, 2021 Commonly, credit card issuers report cardholder activity
Prepare For An Emergency
Are you prepared for a sudden unexpected emergency that requires an immediate cash outlay? Most people are definitely not ready. Only about 60% of us have $1,000 or more in the bank to deal with an unexpected expense. Even if you have it, most medical and automobile emergencies will burn through $1,000 quick. Dealing with these kinds of expenses is another reason so many Americans continue to accumulate so much debt. If you dont have the money in the bank, youll have no choice but to rely upon credit cards. So, if you want to be ready to avoid charging up those credit cards when disaster strikes, start building up an emergency fund.
When it comes to preparing for the unexpected, you should try to accumulate about two weeks worth of pay in your savings account. A modest amount of funds on hand like this can help you deal with immediate crises, such as a car problem or an unplanned bill. Over time, however, you should also attempt to save enough funds to mitigate the effects of a major financial crisis, such as the unexpected loss of a job, or the collapse of a business. Each person will have to determine exactly how much on hand is required for this. Having sufficient cash on hand can help you weather a crisis, avoid additional credit card debt, and give you the time and space you need to get yourself back on track.
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What Is Credit Card Consolidation
January 11, 2017 by Adam Tijerina
This is how a lot of people end up with so much credit card debt. It is not just the balance that is the problem. A lot of consumers have balances on multiple cards. This is how their debt becomes too much to handle for most consumers.
Fortunately, there are many ways for you to get rid of your credit card debt. One of them is credit card consolidation. While it is a great way to solve your credit problems, you have to ensure that you understand it completely before you finalize your decision to use it.
What does credit card consolidation mean?
So what exactly does credit card consolidation mean? This type of debt combines your multiple credit card accounts into one. Instead of paying off different accounts on various due dates, you only have to monitor one payment.
In most cases, consolidating your debts will change something in your repayment plan. You have to make sure that this change will improve your overall financial position. For instance, if you are having a hard time because your budget is stretched to the limit, you should opt for a lower monthly payment. Of course, this would mean stretching your repayment plan over a longer period and that can make you pay more in terms of interest. If you do not want this to happen, you can opt to pay more each month. This will shorten your payment terms and help you save more in the long run.
What are your credit card consolidation options?
Why should you consolidate credit card debt?
Does Any Other Type Of Debt Consolidation Close Credit Cards
You may also run into account closures with some lenders if you apply for a debt consolidation loan. When you apply for a loan, the lender considers your debt-to-income ratio. This measures total monthly debt payments versus total monthly income. Your ratio must be 41% or less to qualify for any loan. With a debt consolidation loan, they factor in the new loan payments and factor out your credit cards.
In many cases, the lender will simply approve or reject your application based on your DTI. However, if your DTI is high, some lenders may accept your loan application but only with caveats. They may require that you close all your accounts in order to secure the loan. That way, they have some assurance that you wont just run up new balances.
The tricky part is that lenders arent always up front about lending restrictions until you formally apply for the loan. Lending agents can give you quotes, but underwriters may have additional requirements once you apply. The challenge is that once you begin a formal loan application, youve already authorized a credit check. That creates a hard inquiry on your credit report. Starting over with a new lender and new loan application creates another hard inquiry. Too many of these can actually hurt your credit score, making it harder to qualify for things like consolidation loans.
So, make sure when youre asking for quotes if the lender places any restrictions on borrowers. This may help you avoid this situation.
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Consolidating Your Bills Means Youll Be In Debt Longer
In almost every case of debt consolidation, those lower payments mean that the term of your loan gets dragged out longer than the seasons of Greys Anatomy. Extended terms mean extended payments. Not interested, thank you. The goal isnt to extend the length of time youre making paymentsyour goal is to get out of debt . . . ASAP!
Do Lenders Perceive Debt Consolidation Negatively
Most lenders see debt consolidation as a way to pay off obligations. The alternative is bankruptcy, in which case the unsecured debts go unpaid and the secured debts have to be foreclosed or repossessed. Lenders dont like either of those choices. You may see some negative impact early in a debt consolidation program, but if you make steady, on-time payments, your credit history, credit score and appeal to lenders will all increase over time.
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Alternatives To Debt Consolidation Loans
If you want to eliminate debt, there are several options, but you dont want to take out a consolidation loan.
You can sign up for a non-profit credit counseling agency for debt management if you feel overwhelmed by your debt. Instead of paying your lenders direct, you will make one monthly payment towards the agency. This will then be paid to your providers.
You may be able to save more money by transferring your credit card balance to a card with 0 percent APR. If you receive a 0 percent interest rate for 18 months and can pay the balance in that time frame, you wont owe interest.
Although you may be required to pay a balance transfer fee between 2 and 5 percent, it will likely be lower than if your loan was personal.
You can pay off your debt without the need for a consolidation loan. You should create a realistic budget that focuses on debt repayment. Look at where you can reduce expenses and use that money to pay off your debt. You can add any raises or windfalls to your loans.
When You Need More Time To Pay Off Your Debt
Theres also the possibility that you have the funds, but you just dont have access to them right now. Perhaps youve recently started a new job and know youll be able to pay off the debt as soon as those paychecks start rolling in.
While youre waiting to be able to pay off your credit card debt, interest is being tacked on and youll end up paying more in the future. Getting a personal loan can put a halt on the interest and help to keep your credit score stabilized.
Just remember that your monthly payment schedule for a personal loan might be a year to more than five years. There are also often penalties if you decide to pay your loan back sooner than its due.
As much as you want that loan paid off as soon as you have the money, itll be in your best interest to allow the loan period to come to its natural end.
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