Many people do not understand how interest compounds on credit cards and how easy it is to accrue too much debt with multiple cards. According to the Federal Reserve, more than 15 percent of American families spend more than they earn each month. Of that amount, nearly 45 percent use credit cards or short-term loans regularly.
In early 2018, the Federal Reserve also reported a total of $1.027 trillion in consumer credit card debt. A survey that was reported by CNBC in early 2019 showed that 70 percent of people with credit card debt could not afford to pay it off. Many people do not know that there are easier solutions for paying off multiple credit cards or which option is right for their needs.
Balance Transfer Consolidation
If you qualify for a new card with an introductory period of zero percent on balance transfers and you do not have excessive credit card debt, this may work for you. You simply transfer balances on high-interest cards to a zero-interest card. However, it is important to pay off the entire balance within the promotional period to avoid accruing more interest.
One drawback with this option is the balance transfer fees. For high balances, this is an important consideration since the fees usually range between three and five percent. This means that a balance of $12,000 may have a fee of up to $600. Another common drawback is that most people have more credit card debt than the new card’s credit limit. If this happens to you, then you will still be paying other high-interest cards on top of your new card and the balance transfer fees.
Debt Consolidation: The Top Credit Card Debt Solution
In the past, most people who wanted to pay credit card balances down were told to call each credit card company and ask for a lower rate. For people who were long-term customers, companies would often comply. They may still do that today. However, the problem with this solution is that the interest rate reduction is usually small, and it is better for you to get a significantly lower rate.
For example, a credit card company may offer to reduce your rate from 25 percent to 18 percent. If there is an option for a better percentage such as 15 percent or lower, you would naturally choose that. Fortunately, there is a cheaper solution. Debt consolidation is similar to refinancing. Just as you may seek a new loan to refinance your home at a lower rate, you seek new financing to repay your credit card debt at a lower rate.
Most people who have decent to good credit can get either a loan with an interest rate that is much lower than regular credit card interest rates or a credit card with an introductory rate of zero percent. These are the two main debt consolidation choices for paying off multiple credit cards.
Debt Consolidation Loan
This solution is better if you have a large amount of credit card debt. After approval, you use the loan funds to pay off each credit card company individually. It is important to not use the cards while you finish paying off the loan. If your cards are too much of a temptation, consider canceling them or all but one of them.
The most advantageous part of a consolidation loan is that there is one simple monthly payment, and the interest cost is much lower than the combined interest of multiple high-rate cards. As it is with any personal loan, your interest rate for a debt consolidation loan depends on your credit score and credit history.
Another advantage of a consolidation loan is that you may have more money on hand each month when you are not paying off high-interest debts on multiple cards. You will get out of debt sooner and may save yourself years and thousands of dollars in interest. You can use any extra money to pay off your loan faster. If you fell into the trap of using credit cards to make ends meet each month in the past, you can save any extra money to use for emergencies in the future.
Why You Need An Expert
If you are paying off multiple credit cards and are ready to get out of debt sooner, one of our licensed and knowledgeable professionals at Christian Debt Counselors can help. They assess your current and future needs as well as your finances to give you the best consolidation solution.
With the various different Christian Debt Relief programs that consumers have available to them, they are able to help guide clients with credit card debt, personal unsecured loans, past due medical bills, and collection accounts. Call today!