Are Credit Card Debt Consolidation Loans the Solution to Credit Card Debt?

Credit card consolidation loans are loans used to settle and pay off existing credit card balances but before we go into the ins and outs of this type of loan we will look at the varying methods of credit card debt reduction and elimination.

Credit card debt can only be reduced through acquiring lower rates of interest or negotiating reduced balance. Reducing the interest on your credit cards will allow you to continue making the same payments but more of your payment will go towards paying the principle, therefore reducing your debt that much quicker.

Requesting a settlement for a reduced figure will totally clear your credit card debt. You will be required to pay off in full the settlement figure which is usually substantially less than the debt owed and the remainder will be written off. Although effective in eliminating debt it can damage your credit score.

These are some of the options that can be used to reduce or eliminate your credit card balances:

1. Balance transfers

Many credit card companies offer low interest introductory deals in order to capture new customers, these offers include 0% interest on transfers. These offers last between 6 to 12 months normally and offer the opportunity to payoff sizable amounts from the principle as any payments you make will not go towards paying interest.

This method is especially advantageous if you have several high interest credit cards and is a great way to maintain and actually improve your credit score.

However, if your situation dictates that you need to look at reducing the amount you pay each month rather than work towards eliminating the debt then this method will only work in the short term as these introductory offers only have a short lifespan.

2. Lower your interest rates through negotiation.

Credit card companies are only too aware of many peoples’ plight during these harsh economic times and are much more approachable with regards to negotiating lower interest rates. You can do this yourself although you may have more success using a debt management company, who, for a monthly fee, will negotiate lower rates on your behalf and handle your monthly payments.

Your credit score may suffer a little through delayed or reduced payments using this method but this will be a temporary issue and it will not be long before your credit score begins to improve.

As already mentioned, you may want to consider this negotiation yourself, not only will you save money on management fees but you will remain in total control of your finances and more importantly avoid being scammed by the many unscrupulous companies who operate within this field.

3. Debt settlement

Negotiating a settlement with your credit card companies to pay off your card can be the most damaging method to use with regards to your credit score. You can use a debt negotiation company to agree low settlement figures with your creditors and this is very similar to what would happen if you were filing for bankruptcy.

You will still need enough money to pay off the settlement figures, so your debt isn’t so much eliminated as reduced but at a cost to your credit score, and this will hinder you from getting any conventional borrowing for the next 2 to 7 years.

4. Credit Card Debt Consolidation Loans

Finally, we have the option of using a credit card debt consolidation loan. A consolidation loan can be either a secured or unsecured loan and is basically any type of loan that you can use to pay off all existing debt, leaving you with just one debt at a much lower interest rate.

The most widely accepted way of doing this is to apply for a home equity loan. Not only do home equity loans have the lowest interest rates available to the general public they are much easier to gain approval for, even if your credit isn’t great.

In fact this situation will improve massively shortly, as with President Obamas’ new home loan plan, as long as you have twelve months of good payment there is a distinct possibility you could actually refinance your entire debt portfolio for as low as 2% APR!

That would massively reduce the amount of interest you pay each year on every debt you have never mind your credit card debt and as a result will also reduce your monthly payments.

Conclusion:

All of these methods suit certain situations but a credit card debt consolidation loan will be the most effective in reducing your bills and eliminating your debt.

However, using balance transfers initially will help significantly in the short term and will benefit you in allowing you time to find the best possible home equity loan to consolidate your debt with.

Balance Transfer Credit Cards – Pay Zero Interest By Transfering Your Balance To A New Credit Card

Balance transfer credit cards are credit cards that let you, the customer, transfer the balance from one of themto another card. Balance transfer credit cards can be a good way to save money because most offer an interest-free period to all new customers. This interest-free period can last six months to 15 months, depending on the type of card. If you use balance transfer credit cards wisely, you can even consolidate several balances to one card for a much lower interest rate.

Do your research when selecting a balance transfer card. Chief executive of MoneyExert, Sean Gardner, has been quoted as saying, “As with all credit card deals, you need to check that the card you’re using is suited to your requirements.”

Some cards charge a transfer fee, so this is something you need to take into consideration as well. Once you’ve consolidated you debts, start aggressively attacking the balance by making payments much higher than the minimum required. It’s also a good idea to make more than one payment a month.

The traditional credit card typically requires a monthly minimum payment that covers the interest. Since many balance transfer cards offer 0% interest for a limited time, you probably won’t be required to make a payment for that amount of time. If you’re exceptionally disciplined, you can set up a separate high-interest bank account, put money in it until you have enough to cover the card’s balance, and then pay it off in one large payment. This method will only work if the transferred balance is manageable, if you don’t continue to use the card, and if you have sufficient self-control not to use your saved money on that dream vacation or that coveted product.

Opening a GIC (Guaranteed Investment Contract) is also a good way to pay off a transferred credit card balance if you have a long enough interest-free period and a manageable balance. A GIC will typically give you a higher interest rate than a savings bank account.

There are many different types of GICs available and you’ll need to check with your bank or other banks in your area to see what’s available to you. Money from GICs can only be taken out without penalty once the GIC has matured.

Ideally you should have a GIC for at least one year. One-year GICs can give you an interest return of three to four percent. There are shorter term GICs available, but your ROI (return on investment) will be smaller due to lower interest rates. When using a GIC, you can make saving automatic by arranging for a set amount of money to be removed from your bank account and put to your GIC every month. This way there won’t be money accumulating in a bank account tempting you to spend it.

A word of warning. GICs aren’t going to make your thousands of dollars into millions, but they can get you a little extra money that you didn’t have before. And every penny counts when you’re trying to eliminate your debt.

Balance transfer credit cards that might work well with a GIC are the:

Blue from American Express
Chase Platinum Visa Card
Discover More Card
Miles by Discover Card
Discover More Card – Clear
Discover More Card – Wildlife Collection

Each of these cards has an introductory interest-free period of at least 12 months. The Blue from American Express has an interest-free period for up to 15 months and no annual fee. The regular interest rate is 11.74%. This card has a transfer fee of 4.99%. Some balance transfer credit card companies offer additional perks for transferring your balances to their cards. The Discover More Card gives a $40 Cashback Bonus. The Chase Home Improvement Rewards Card will give you a free Zircon iLine Laser Level, valued at almost $40, after your first purchase on the card.

Always read the small print when applying for a balance transfer credit card. Some of these types of cards only provide the 0% rate on the transferred balance and not on additional purchases. If this is the case, you’ll need to pay the interest on any purchases you make.