Thursday, September 19, 2013

Consolidating and Eliminating Credit Card Debt

Credit card debt can handcuff you. You need to make some home improvements but you cannot purchase the materials because you are at or over your credit card limits. You need to take a trip somewhere but you cannot purchase the airline tickets or reserve the hotel.

You find yourself staring at a mountain of credit card debt and you do not think you will ever get around it. But you do have some options even if your credit rating is poor.

Debt Consolidation

One of the problems with having a lot of credit card debt is that ever credit card requires you to make a monthly payment. Miss one payment and the interest rate gets jacked up and you incur more debt as the fees increase.

You can consolidate all of the credit card payments into a single payment through the use of a debt consolidation loan. You take the money from the debt consolidation loan to pay off all of your credit card balances. You are left with one loan and one payment each month.

But I Have Bad Credit

It was not that long ago that a bad credit rating would have prevented you from obtaining a personal loan. But then we went through the crazy real estate period where anyone could get a mortgage and buy an overpriced home.

We all know what happened next; financial industry collapse. All those high mortgages written on overpriced homes purchased by people who should never have been able to afford either suddenly disappeared. Some were too big to fail but the rest of us just got financially beaten up.

Now traditional lenders are not lending to even grade A credit people. But there are not many of them around since the credit collapse hit them even if they had not taken out a huge mortgage.

Result: those of us with poor credit are locked out of the credit market. But that is not entirely true. We only are locked out of the traditional credit market.

New Lenders to the Rescue

Where there is a sufficient demand, suppliers will emerge. This is true in the world of loans to people with bad credit.

Use your favorite search engine and look for the term "debt consolidation." You will see that there are thousands of web links to companies offering loans to people with bad credit.

This new breed of lender specializes in debt consolidation loans. They know these loans are being used to pay off credit card debt. They know that when the credit card debt is paid off that the credit rating will automatically improve.

Do not confuse these lenders with payday loan lenders. Payday loans are extremely high interest rate loans that are designed to be paid off in a matter of weeks, not years. These loans can come with annual interest rates of 100 percent or higher.

What Should I Do?

Just like any purchase or financial decision, you must do your research. How much do you need to pay off your credit card debt? What is your current debt-to-income ratio (e.g., how much can you afford per month for loan repayment)? Can you get a cosigner for the loan?

Once you know how much you need and how much you can afford, you need to research the lenders. Always be prepared for scam artists out to get your money and your personal information. It is illegal for a lender to charge a fee to guarantee a loan acceptance.

Once you have a short list of lenders, research their reputations. Check with the Better Business Bureau. Check their individual terms and conditions.

Once you have selected the lender, make the strongest application possible. Obtain your debt consolidation loan. Pay off your credit cards and keep them paid off. Watch your credit score rise and stop worrying about the next financial crisis.

No comments:

Post a Comment