Fear not as this is a very common concern with the American household having a credit card debt in excess of $15,600. If you are finding it impossible to manage your multiple credit card debts and are regularly making the payments late or missing them altogether, consolidation of debt could be the answer you are looking for.

We agree that it can be a terrible thing to lie sleepless at night dreading what the next morning will bring; more credit card statements and innumerable calls by collection agents threatening dire consequences. However, fear not as this is a very common concern with the American household having a credit card debt in excess of $15,600. If you are finding it impossible to manage your multiple credit card debts and are regularly making the payments late or missing them altogether, consolidation of debt could be the answer you are looking for.

Which Is the Best Way to Consolidate Your Debts?

The options that are typically available is getting a new loan to repay the old ones, seek a debt management plan from a credit counseling agency or apply for a new credit card to shift all your existing balances. By adopting any one of these methods not only will you find debt management easier with just a single payment every month to make but also you could save really substantially with a lower rate of interest. The method that you should use or whether you should at all consider consolidation really depends on your financial circumstances. While the best way of determining it is to take the advice of a professional credit counselor, some practical tips on choosing the best consolidation strategy:

Verify Your Credit Reports

Since it can prove very difficult to get a loan or even a new credit card with a poor credit score, you should fist apply to all the three credit agencies (TransUnion, Equifax, and Experian) for a copy of your credit report and review all the entries for accuracy. In case you find a discrepancy, you need to immediately bring it to their notice and ask for immediate rectification – be sure to include supporting documentation in support of your claim to make the process faster.

Examine Your Consolidation Options

Because you have typically three options of consolidating your debts, you should carefully investigate the pros and cons of each so that you can choose the best one applicable to your circumstances.

New credit card:

One of the principal reasons why you have landed up in a debt problem is because your credit cards may be charging you very high rates of interest. You should scout around for a credit card that has a substantially lower interest rate and shift all your balances to it to save substantially on your interest expenses. If you have a good credit score, you may even be eligible for a zero percent balance transfer scheme for as long as 18 months.

Consolidation loan:

Typically debt consolidation loans are available from private lenders; these carry a simple rate of interest and can be taken for as long as five years. While there will be a lot of companies, banks and credit unions offering consolidation loans, the rate of interest that you will get depend on your credit score.

Debt management plan:

If your debt is of really serious proportions, it may be wise to approach a credit counseling agency, preferably a non-profit, for a debt management plan that will ensure that you are left with only one payment per month while the agency handles the task of paying off your lenders.

Calculate the Cost of Consolidation

Before you opt for any one method of consolidation, you should carefully take into account all the costs involved. For example, credit card balance transfers and consolidation loans often have a processing fee attached. Examine the impact of all the fees and add them to the quoted interest rate to arrive at the real cost – often you could be surprised to find the cost shooting up to a level that you would have never expected.

Find Out the Impact on the Credit Score

It is quite likely that when you consolidate your debt your credit score will be negatively impacted. The extent, however, depends on the method chosen and the extent of your debt. If you are shifting your credit card balances to a new card take care that you don’t max out the card as this has an adverse effect on the credit score. Similarly, undertaking a debt management plan is also likely to have a negative effect on your credit score as lenders will freeze your account during the period. An application for a consolidation loan will also lower your score due to the hard inquiry made by the lender.

Conclusion

Irrespective of the route chosen by you to consolidate your debts, you will need to make a firm commitment to stick to the repayment schedule. It is also very important not to keep on using your credit cards while you are still in the process of eliminating your accumulated debt, else you will land up in a bigger problem than before.