OK, first thing you need to do is realize and accept that you
have a problem. You have too many credit cards and too much debt.
The first step in credit card consolidation counseling is to try
and understand what happened, and what are your best choices.
If you are carrying high balances on several credit cards, it
has a big impact on your credit score. Why? Because you have used
up a lot of credit if your balances are over 50% of the total
credit allowed on any credit card. Another important number is the
total amount of money owed on all credit cards.
There is no reason to have more than 2-3 credit cards. It's
understandable to have one for personal, one for business
expenses. After that, it's really hard to come up with a good
reason other than to extend your credit. In some ways, it's not
all your fault. The banks and other credit card issuers have been
on a binge in recent years to acquire new accounts. And they are
very good at offering huge incentives to sign up.
But those days are over and now we all (including the issuing
company) have a huge hangover. The consumer has too many credit
cards and high balances, and the credit card companies have too
much questionable credit extended.
According to the latest statistics, most consumers are carrying
an average of $8,000 to $20,000 in balances. That's crazy since
the interest on credit card balances can run as high as 30%. Even
at 9 or 10%, you increase your debt by $65 per month. That's $780
per year.
If you pay $200 per month (2.5% - what many demand as minimum
payment on $8000 balance), it would take you over 19 years to pay
off your debt. And due to the current credit crunch, many card
issuers are raising the minimum and the interest rate. Imagine if
you all of a sudden got your interest rate increased to 22%, that
would be an interest cost of $142 per month.
So the first step in any counseling is to make sure you
understand all the numbers and the consequences. Even though you
can probably get a loan at less than the 13%, and a set amount of
years ,you don't want to repeat the mistake. Understanding that
the consolidation loan is a temporary fix is important.
Any good counselor should recommend that you stop charging
items now. Don't cancel the cards right away as it will have a
negative impact on your credit. Put your cards away in a save
place and eventually cancel them one at a time until you are down
to 2 or 3 that you might need in the future.
The next step is to do a budget. Figure out your monthly
expenses, starting with the absolutes like housing, car,
insurance, and food. Then add in important ones like savings, debt
reduction, and other current obligations. Once you have all the necessities,
then you can add in entertainment, vacations, etc.
This is not a pleasant task for many people, but it is
important to figure out where all your money is going first. Then
you can make decisions based on your budget to see exactly what
you can do to pay down your debt. Debt management is the name of
the game and we all get to play it.
When you know the facts and start looking for a loan, make sure
you look at all the fine print. There are plenty of people out
there that are more than happy to separate you from your money (to
learn more, go read this article: Credit
Card Consolidation Scams).
You have several choices for loan sources. Check with your
local credit union or bank, savings and loan, or other financial
institution. But make sure you understand the terms and what you
are agreeing to before you sign anything.
If you still need help, check with your local church or
community service associations, many offer credit counseling in
general. Credit card consolidation counseling can help you
understand the true issues and come up with some good options.
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