Credit card debt consolidation help is available in 2019 but you need to understand the different ways that a person can consolidate their debt.
Option 1: Loan
Credit card debt can be consolidated into a single payment by using a loan. Technically speaking, credit card consolidation is referring to using a loan to pay off debt. Loans can come in the form of home equity lines of credit, balance transfer cards and online loans. All low-interest loans require a high credit score.
Option 2: Debt Relief Program
Debt relief programs offer an excellent alternative to debt consolidation loans for anyone with a credit score of 700 or less. Debt relief programs restructure your current debt payments to be more affordable.
The following 3 rules will help you decide which route to take if you are currently contemplating credit card consolidation.
If your credit score is under 700 don’t apply for a loan to pay off debt. The only time this would make sense is if the purpose of the loan is not to save money but rather to establish positive payment history to rebuild your credit score.
Good credit? What does “good credit” even mean? “Nearly 57% of Americans have a FICO score of 700 or higher, ” but even with a credit score of 700 or higher, half of these folks could not obtain a loan with an interest rate of less than 10% because of a high debt-to-income ratio.
More than 50% of Americans have maxed out credit cards, according to a recent article in Forbes, and high balances can hurt a person’s credit worthiness and ability to borrow. Having high balances is what negatively affects a person’s debt-to-income ratio.
Don’t apply for a debt consolidation loan if your credit utilization ratio is above 50%. Example: if you have one credit card with a $10,000 credit limit and your balance is $5,500, your credit utilization ratio is 55%. You would not qualify for a low-interest loan.
If you determine that getting a loan is not the right option and that you’d be better off using a debt relief program, before signing up for a debt relief program consider all three of these plans.
Before signing up for a debt relief program, first consider the following 3 plans.
- Debt settlement: If you fall behind on monthly payments by more than 2-3 months consider debt settlement services. After getting approved for a debt settlement program the company will contact all your creditors notifying them that you are on the program. Your accounts will all go into third-party collection status eventually, and can then be settled for around half of the balance, not counting settlement fees. Since you are paying back less than the full amount owed you can become debt free in around 42 months or less. Your credit scores will take a hit with debt settlement but after graduating the plan you can being rebuilding your credit without all the debt holding you back.
- Consumer credit counseling: If you are only 2 months or less behind on payments consumer credit counseling plans can get your payments back to “current standing”. Only credit card debt qualifies for this plan. You will end up getting out of debt in around five years with this type of program and your credit score will not get negatively affected. You’ll end up paying more money in the end than with debt settlement but you’ll preserve your high credit score.
- Chapter 13 Bankruptcy can save your home from foreclosure and stop credit card lawsuits, but you’ll end up having to pay back at least 50% of your debt over a five-year period. If you qualify for Chapter 7 your debt could get wiped away clean and all you’d end up paying are bankruptcy attorney fees that can cost between $2000-$3000, but with Chapter 7 your assets including your property could get taken from you by the court system so that they can sell your assets to pay creditors with the proceeds.