Consolidating Credit Card Debt
Having a large volume of credit card debt is a problem faced by several people, especially during and after the recession. Today, as the economic recession is receding, there are several people who have a mountain of credit card debt. In such instances, consolidation of debt has become a good option. Let's take a look at some good options that can be used for consolidation and how the actual consolidation process can be executed.
The actual meaning of credit card debt consolidation is simple. You can easily borrow this consolidation loan which pays off the credit card debt to credit cards companies that you have incurred, at one go, and then you can repay the consolidation lender over a long period of time with several installments and a very low rate of interest. There are three requirements for this kind of loan, one you need an average or above average credit score, two, you need a security or collateral that can be pledged with the lender and thirdly, you need a good monthly income with proper projection.
Consolidating Options
How to consolidate credit card debt? It's a common question with multiple answers. Here are a few suggestions and options that would help you to go about the process of consolidating the debt of credit cards.
- Credit card debt consolidation loan is basically a secured loan, hence you will have to find an appropriate collateral that can be pledged as an appropriate security. Some common collateral include, gold, silver, stocks, bonds, securities, stock options, annuity or life insurance returns, etc.
- In case if you owe a really large credit card debt and have to borrow a hefty loan, your car or real estate would have to be pledged. In some cases, home equity and some parts of the real estate are also accepted as security.
- The usual custom among lenders is to provide a principal amount which is equivalent to the total of all debt. However, some lenders provide a home equity line of credit instead. However, you will need a strong security and a good steady income flow.
- If you have a mortgage, then consolidating credit card debt into mortgage payments is also possible, and is quite cheap, as it reduces the interest rate on the consolidation loan even further.
Process of Consolidation
The process is fairly simple. However, here are some tips on credit card debt consolidation that will help you to complete the process in a totally simple and hassle free way.
- First off, block and cancel all your credit card accounts, as there is an exorbitant APR that is going to be charged, irrespective of the fact whether you use your credit card or not. Hence, your first step would be to put a block to all cards and accounts.
- Next, apart from the asset that is pledged, the lender also analyzes your other debt. Hence more the debt you have, the more is the possibility of the application getting rejected. Hence, try to pay off all possible, smaller loans.
- Next, you will need to apply to lenders. It is highly recommended that you take up the loan from banks such as HSBC, Wells Fargo, Bank of America Corp, etc. The advantage is that the interest rate on this loan is fair and low. To get such a low interest debt consolidation loan All you will need is a reasonably good credit score, which goes above 600. Private lenders should be kept as a last option. Lastly, you can also borrow from financial institutions which specialize in debt consolidation lending.
- It is necessary to avoid debt settlement and even negotiation as it is not that productive or effective due to the fact that is costs you and also brings down your credit score considerably.
- It is also necessary to avoid any unrecognized agency or company that promises to bring down the debt.
