How To Consolidate credit card debt

People who are in debt (credit card debt) often get to hear this advice ‘Consolidate credit card debt’.

So, what does that ‘Consolidate credit card debt’ mean?

Well, pretty simply, ‘Consolidate credit card debt’ means consolidating the debt on various credit cards into one (or two) credit card.

This consolidation can be done either through a low interest bank loan or by transferring balance to a new credit card (i.e. transferring the amount you owe, on one or more credit card, to a new credit card(s)).

So what should you do when you are looking to consolidate credit cards?

Well, the key thing to look for is the APR or the annual percentage rate. Whatever method you adopt to consolidate credit cards, APR will always be the key; in fact, you could say that it is the sole criteria to look for.

So, if you use a bank loan to consolidate credit card debt, the interest rate on the bank loan should be lower than the APR of the credit cards whose debt you are consolidating. Similarly, if you are moving to another credit card, you must make sure that the APR of the new credit card is lesser than the credit cards whose debt you are consolidating.

However, there is a catch that you must be aware of when laying a plan to consolidate credit card debt. The APR rates advertised by most credit card suppliers are the short term APR rates which are meant to lure you to consolidate credit card debt with them. By short term we mean APR rates that will applicable only for an initial period of less than 12 months or some other period after which the APR rates increase.

When you go on to consolidate credit card debt with these credit card suppliers, they will offer you a lower (even 0%) APR for the first 6-12 months; and a much higher APR after that. You should check what this higher APR rate is. Your decision to consolidate credit card debt will be fruitful only if the new APR rate is lower than or equal to the APR on your current credit card. You might check with your current credit card supplier to see if he is able to lower your APR (if that works, it will make things really easy for you).

Before you move on to consolidate credit card debt you should understand that consolidating credit card debt will be beneficial only if you pledge to adopt and follow disciplined approach to credit card usage i.e. controlled spending and regular/timely payment of credit card dues.

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How to eliminate credit card debt

How to eliminate credit card debt ? – A question that is asked by lots of individuals around the globe.

These are the men and women who somehow (mostly due to uncontrolled spending) landed into the mouth of this monster called ‘Credit card debt’.

So what are the ways to eliminate credit card debt ?

 If you are looking to eliminate credit card debt, you have already reached 50% of your goal because your decision to eliminate credit card debt is the first and the most important step towards you being able to eliminate credit debt.

Having said that, it is important to mention that you also need to be firm on this decision and stick to it with complete sincerity and seriousness, till you finally eliminate credit card debt (and even after that). To eliminate credit card debt, you need planning. This starts with analysis of current situation in terms of your debt and your finances (current and as expected in near future).

So to eliminate credit card debt, you need to first check the amount you owe on various credit cards. Just use a notebook to note down the amount you owe on each credit card and the corresponding APR associated with them.

Once you have this information handy, you can total up the various amounts to get the total amount of your credit card debt. After all, you can’t eliminate credit card debt if you don’t know how much it is actually. The next thing is to see if you have enough cash handy e.g. in your various bank accounts, which you can put to use to eliminate credit card debt (of course, you will need to take a view on how much cash you will need to fulfil your day to day and specific future needs). If you find that you have enough to eliminate credit card debt completely, just go ahead and eliminate credit card debt and earn your peace of mind.

However, if you can’t eliminate credit card debt completely, check the amount that you can use to eliminate credit card debt partially. Next step, as you must have guessed, is to check how best you can use this amount to eliminate credit card debt (even if partially) i.e. which portion of credit card debt should you eliminate first. So, first eliminate credit card debt on the credit card which has the highest APR and which is hitting you the most. Then eliminate credit card debt on the credit card which has the next highest APR and so on and so forth. If you are incurring additional late fees etc on some of your credit cards, you might decide to reserve some amount to make minimum payments on those credit cards (before you finally eliminate credit card debt on them).

What we have seen is just some basic analysis and first steps on how to eliminate credit card debt. You might need to take some other steps to eliminate credit card debt e.g. consolidation of credit card debt is one good option. However, it’s imperative to understand that any and all methods to eliminate credit card debt will fail if you don’t inculcate controlled spending habits.

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The Problem Of Credit Card Debt

Credit cards are no longer a luxury for most folks, these days they are almost a necessity to function in modern times. Therefore, you would imagine a lot of people going for credit cards. In fact, a lot of people posses more than one credit cards. So, the credit card industry is growing by leaps and bounds. However, the credit card industry and credit card holders are posed with a big problem called ‘Credit Card Debt’. In order to understand what ‘credit card debt’ actually means, we need to understand the work flow associated with the use of credit cards as such. Credit cards, as the name suggests, are cards on which you can get credit i.e. make borrowings (your credit card debt). Your credit card is a representative of the credit account that you hold with the credit card supplier. Whatever payments you make using your credit card are actually your borrowings that contribute towards your credit card debt. Your total credit card debt is the total amount you owe credit card supplier. You must settle your credit card debt on a monthly basis. So, you receive a monthly statement or your credit card bill which shows your total credit card debt. You must pay off your credit card debt by the payment due date failing which you will incur late fee and interest charges. However, you have the option of making a partial (minimum) payment too, in which case you don’t incur late fee but just the interest charges on your credit card debt. If you don’t pay off your credit card debt in full, the interest charges too get added to it. So your credit card debt keeps on increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kind of loans/borrowings. Further, the interest charges add on to your credit card debt each month to form the new balance or the new credit card debt amount. If you continue making partial payments (or no payments) the interest charges are calculated afresh on the new credit card debt. So you end up paying interest on the last month’s interest too. Thus your credit card debt accumulates rapidly and soon you find that what was once a relatively small credit card debt has ballooned into a big amount which you find almost impossible to pay. In addtion, if you don’t get control of your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt occurs and becomes a nightmare.