Mahomes Capital takes a look at how to consolidate credit card debt
Mahomes Capital understands that life comes, and sometimes debt is inevitable. You can avoid high daily compound interest and save money for your future and your family with a Mahomes Capital debt consolidation loan for your unsecured debt.
Based on the reviews of Mahomes Capital clients, this simple step allows you to take control of your finances and save thousands of dollars over the course of your loan. It’s money that goes in your pockets – not your lenders or credit card companies.
Credit card debt consolidation
Even if you manage to graduate without incurring student debt, chances are you have a credit card.
If this debt starts to get out of hand, it can be difficult to make payments on time and in full.
The quickest route to financial and emotional freedom is to pay off your balances.
However, when you have multiple balances spread across multiple cards, it can be difficult to stay afloat.
What can you do, then, to better manage credit card debt and pay it off permanently?
You can get your debt under control, but first you’ll need to formulate the right strategy.
Debt consolidation can be a catalyst for this process. With this approach, you will consolidate multiple debt balances into one monthly payment.
You would take out a new line of credit or a new loan and then use it to pay off your debt. You then focus on managing and repaying a single balance.
Not only will you no longer need to juggle creditors, you will also find that you may even get better terms. This is where the real benefit of debt consolidation will be felt. You will make your monthly payment more manageable, or you could take this opportunity to pay off the debt faster.
Is debt consolidation always a good idea?
Debt consolidation can seem like a good idea if you are feeling overwhelmed by your overdue credit card balances.
Before you dive in, however, you should understand that debt consolidation is not a one-size-fits-all solution.
This approach works best as part of a longer term financial plan. You will need to think hard about the problem before deciding if it would work for you.
Ask yourself the following questions:
- Are you fully committed to changing your behavior? You should spend less than what you earn, stop charging anything on your credit card, and commit to a savings plan
- Are your income sufficient to repay your consolidated debt in 5 years?
- Is your total credit card debt half of your gross income or less?
If you answered “Yes” here, debt consolidation might be a good option for managing and paying off your credit card debt. If you are not sure, this is probably not the right solution.
Debt consolidation is very effective if you stop doing the things that caused you to accumulate debt. You will need to change your lifestyle to meet your financial goals. Otherwise, you might end up moving the problem rather than solving it.
Credit Card Debt Consolidation: Getting Started
The best way to start is to consolidate debt on a credit card with an introductory rate of 0% APR. This will give you the opportunity to pay off your balance without getting in the way of interest.
This offer will end, so it is crucial to have a fixed repayment plan in place before initiating the balance transfer. This will allow you to maximize the profit from the interest-free period.
The Chase Slate Credit Card is expressly designed to help consumers pay off credit card debt through balance transfers. There is no charge for the card if you transfer balances within the first 60 days of opening your account. After that, you will pay a 5% fee to transfer any balance. The card gives you 15 months at 0% APR for balance transfers. There is no annual fee with this card.
Alliant Credit Union issues two credit cards: the Visa Platinum Rewards card and the Visa Platinum card. Both cards come with 12 months of 0% APR and neither has an annual fee. Balance transfers are also generally free.
How Does Your Credit Score Affect Debt Consolidation?
When looking for credit cards, you will need a good credit score.
Here are some easy ways to improve a reporting score:
- Make all payments in full and on time and in full
- Don’t open multiple new accounts at once and don’t close multiple accounts either
- Reduce the number of inquiries about your credit report
- Pull your report and check for errors
How To Consolidate Credit Card Debt With Loans
If your credit is above average, you may be eligible for a debt consolidation loan. This will attract a higher interest rate than the majority of balance transfer cards, but you will have the option of paying off your balance over a fixed period of time.
If you don’t like the idea of another revolving line of credit and want the security of a guaranteed repayment date, this might be a good solution.
The process works similar to a balance transfer credit card. You’re applying for a personal loan or installment loan that is large enough to service your credit card debt.
If approved, the lender purchases the debt and places it on your loan. It should be at a much lower interest rate.
Credit union debt consolidation loans are an alternative if you don’t like this approach. Credit unions are generally flexible and work with more people than banks.
You can also consider peer-to-peer loans for credit card debt consolidation. This is an attractive option if you cannot qualify for a regular loan from a traditional bank. These loans often have low interest rates and favorable terms, so they are worth exploring.
Can Debt Consolidation Affect Your Credit Score?
Your FICO score is based on 5 elements:
- Payment history: 35%
- Amount: 30%
- Length of credit history: 15%
- Credit mix: ten%
- New credit: ten%
Debt consolidation can affect your credit in a number of ways, both good and bad.
When you apply for a personal loan or credit card for debt consolidation, it goes as a serious inquiry into your credit report. Too many of them can hurt your score on each request, causing your score to drop by around 5 points.
Your credit utilization rate is also crucial. This is the ratio of your available credit to the amount of credit used. Keep this at 30% or less.
By opening a new line of credit or a new loan, you could help reduce your usage rate, as long as you don’t close any cards.
How about a debt relief agency?
If you are having trouble getting approval for a balance transfer credit card or loan, it may be time to determine if a debt relief agency or maybe even bankruptcy. might fit more easily. Both of these avenues are avenues of last resort, and you should pursue either one lightly.
A debt relief agency will negotiate with creditors on your behalf. The goal is to get a lower interest rate on the outstanding unsecured debt. Sometimes they might even reduce your total balance.
Unfortunately, this is an industry filled with companies using questionable tactics. There are good agencies out there, but finding one can be difficult.
Make sure you research the agency, costs, how the agency will make payments, and perhaps most importantly, check out plenty of customer reviews. If you are having a lot of complaints through the Better Business Bureau, look elsewhere.
Most agencies will insist that you close any credit cards they are helping you pay off. This could temporarily damage your credit score.
An agency will also charge a fee calculated as a percentage of consolidated debt.
Filing for bankruptcy will also incur legal fees and blast your credit score for years to come. It takes 7 years to fully rebuild your credit after bankruptcy.
Consolidation is useless without a plan
Create a budget to better understand your income and expenses.
Review your expenses and write down your future goals.
If you’re considering debt consolidation, all that matters is finding a plan that works and committing to it completely. Also, avoid taking on new debt, as this will only slow you down.