How To Consolidate Credit Card Debt
It’s no secret that credit card debt in the U.S. has skyrocketed to an all-time record high: $1.13 trillion and counting. In this current financial landscape, high interest rates can quickly lead to a situation where debt becomes an overwhelming vicious circle. Thankfully, there are some methods to manage, and mitigate, this kind of debt. Consolidation is one such effective strategy to deal with this financial burden.
The information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
What Debt Consolidation Involves
Debt consolidation is the process of combining multiple credit card balances into a single loan or payment plan. This strategy can make managing your debt easier by offering a single payment each month, often with a lower overall interest rate. Understanding the terms, potential fees, and the impact on your credit score is crucial before choosing this path.
If you think consolidation is right for you, then here are some basic next steps to consider...
1. Assess Your Financial Situation
Before consolidating your credit card debt, take a thorough inventory of your current financial situation. This includes listing all debts, interest rates, monthly payments, and your overall budget. Knowing exactly where you stand financially will help you determine the most suitable consolidation strategy.
2. Explore Debt Consolidation Options
There are several ways to consolidate credit card debt, including:
- Balance Transfer Credit Cards: These cards often offer a low introductory interest rate, making them an attractive option for transferring balances from high-interest cards.
- Personal Loans: A consolidation loan from a bank or online lender can pay off your credit cards, leaving you with a single, lower-interest loan to repay.
- Home Equity Loans or Lines of Credit: If you own a home, borrowing against its equity can provide a low-interest option for consolidation.
- Debt Resolution Plans: Offered by credit counseling agencies, these plans negotiate with your creditors to lower interest rates or waive fees, consolidating your debts into a single payment.*
3. Compare Interest Rates and Terms
When considering consolidation options, compare interest rates, fees, repayment terms, and the impact on your credit score. Look for a consolidation loan or credit card that offers a lower overall cost than what you're currently paying.
4. Apply for a Consolidation Loan or Balance Transfer Credit Card
Once you've chosen the best consolidation option for your needs, apply for the loan or balance transfer credit card. Be sure to read all terms and conditions carefully before signing any agreements.
5. Create a Repayment Plan
With your debt consolidated, it's crucial to create a repayment plan. Determine how much you can afford to pay each month and consider setting up automatic payments to ensure you stay on track.
6. Monitor Your Progress and Adjust as Needed
Regularly monitor your debt repayment progress. If your financial situation changes, adjust your repayment plan accordingly. Staying disciplined and committed to your plan is key to successfully consolidating and paying off your credit card debt.
Will Consolidation Impact Your Credit Score?
Applying to consolidate your credit accounts could lead to a hard credit pull, which, while standard, could impact your score for a short time. Opening a new account can also decrease the average age of your credit, which could negatively impact your score as well.
That said, if you make regular, on-time payments, consolidation could actually help build your credit, because your payment history makes up about 35% of your score. It could also lower your credit utilization and diversify the types of credit you have—two factors that are considered positives on your credit report.
Basically, depending on your unique credit history, debt consolidation likely won’t affect your credit score any more or less than another type of loan would. Only you know what borrowing risks you’re willing to take and whether the pros outweigh the cons for how your credit score may be affected.
Take Action Today
Consolidating credit card debt can be a smart strategy to manage and reduce your financial burden. By understanding your options, comparing terms and rates, and sticking to a repayment plan, you can take control of your debt and work towards financial freedom.
Remember, the most important step in consolidating credit card debt is taking action.
Contact JG Wentworth today to see how we can help you consolidate your credit card debt through our debt resolution program and get you back on financial track.
Sources Cited
Dickler, J., “Americans have $1.13 trillion in credit card debt. Here are some expert tips to help pay yours off.” CNBC. February 12, 2024.
Kagan, J., “How a Home Equity Loan Works, Rates, Requirements & Calculator.” Investopedia. January 28, 2024.
Guinan, K., “How to pay off debt: Compare effective strategies and tips.” Bankrate. December 13, 2023.
DeNicola, L., “Does debt consolidation hurt your credit?” USA Today. October 2, 2023.
* This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required. Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 51% before our 25% program fee.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy.