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What Do I Need to Know About Credit Card Debt Consolidation?

Are you carrying balances on several high-interest rate credit cards?  If so, you might want to consider consolidating all your balances to one single card, with a low or 0% APR in order to pay off your credit card debt faster. Remember, before you make the decision to consolidate, do your research and consider these points.

Keep Tabs on your Credit Report

Review your credit report for errors.  A 2012 study by the Federal Trade Commission (FTC) found that errors on credit reports are quite common.  While some are innocuous (like a misspelling) some can result from identity theft and even mixed-up files with someone with a name similar to your own.  Keep on top of your credit by requesting a free annual credit report from each of the three national credit reporting agencies.

Take an Honest Look at What You Owe

Not all scenarios are credit equal when you are looking to consolidate your credit card debt.  Determine:

  • How much debt do you have? Gather all your statements and add up what you owe to your creditors.
  • How much can you realistically pay monthly? The goal is to pay off debt quickly, so determine what you can pay.
  • How long is the introductory low-APR window? The longer the APR window is, the more time you have to pay off your debt before the rate reverts to the higher APR.

Balance Transfers Can Affect Your Credit Rating

Consolidation of credit card debt is usually a good idea, but if your goal is just to keep switching to a low-interest APR card once the current one runs out, think again.  This will negatively impact your credit score.  Your FICO Credit Score is determined by “credit utilization,” which is the amount of credit actually being used.  For the best credit rating, keep credit card balances low.  If you have a $10,000 credit limit, aim to keep your credit at about 30% of that limit, therefore, $3,000 or less.  Also, you might be tempted to close all your old accounts after consolidation.  Account age also contributes to about 15% of your overall credit score.  Therefore, in some cases it’s best to keep those paid off accounts open.  Just be sure to hide (or destroy) those cards so that you don’t rack up more debt.

To Avoid Debt Consolidation Mistakes: Read the Fine Print

An introductory APR of 0% might only apply to the balance transfers.  As a result, any new purchases could be charged at the standard (much higher) APR.  Also, while a 0% APR is a great way to pay off your debt faster, and save on interest payments, contrary to public perception, it’s not free.  Balance transfer fees are typically around 2-5% of your transferred balance. However, despite some costs associated with a transfer you will probably enjoy substantial savings in the long-term.

Not all Credit Counselors Have Your Best Interests in Mind

Sometimes your financial situation can benefit from having a credit counseling company take a look at your options.  Just because an organization is “non-profit” doesn’t guarantee their legitimacy.  Sometimes they charge very high fees. Keep the following in mind:

  • They should willing send you free information about their services without requiring your personal details.
  • They should be licensed in your state.
  • They should offer a wide-range of services including budget counseling, to saving and debt management classes.
  • Their counselors should be accredited and/or certified.

Get a Consolidation Loan from an Online Lender or Local Bank

If a credit card consolidation transfer isn’t right for you there are other options.  You can look into a personal loan from your local bank or credit union.  You can also look for a reputable lender online.  Be sure to check them out with the Better Business Bureau and look for complaints.  Also, do your homework by checking to see if that company is registered to do business in your state at your State’s Attorney General’s office.

Why Hiring a Debt Attorney Can Help You Consolidate Your Credit Card Debt

While you are able to settle debts on your own, you may feel that you need the assistance of a licensed attorney to help consolidate your debt and help you turn your bad credit around. After analyzing your situation, a debt attorney can provide you with the legal advice you need (something a debt consolidation company cannot do).  A debt attorney will go over all of your options and advise you accordingly.  We’re here to help you discover what your options are.  Please give us a call at 855-976-5777.

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Kevin Fallon McCarthy is the McCarthy Law PLC’s managing attorney and an experienced Phoenix debt attorney. Mr. McCarthy has also worked as general counsel for a large corporation. He has corporate counsel experience in human resource matters, general corporate governance, and union class action litigation.