Tips for consolidating credit card debt
She says she prefers to work with clients for months to gauge how serious they are about repaying their debt. Your credit counselor works with creditors to consolidate the full amount of your loans at a lower interest rate or for a longer repayment period three to five years usually. It may also offer a low interest rate for a promotional period but then the rate spikes. A common error is using the newly freed up credit on your once maxed-out credit cards to spend again. Even among nonprofit credit counseling agencies, some are a better fit than others. Both Bossler and Lewis have seen it firsthand: A credit counselor, money coach or financial adviser can comb over your spending and help you identify trends.
If you do decide to consolidate debts into a new loan, make sure you understand its implications. Thomas Nitzsche, a financial educator at the nonprofit counseling agency Clearpoint Credit Counseling Solutions, estimates that the average credit counseling client cuts their interest rates in half and reduces their total monthly payment amount by 20 percent. Firms will often withhold payments from creditors for months to force a deal. Your credit counselor works with creditors to consolidate the full amount of your loans at a lower interest rate or for a longer repayment period three to five years usually. Tack a line of credit, car loan or student debt onto your string of credit card bills, and you can see why debt consolidation looks like a viable resolution. Replace your old habits with new ones. This is sometimes effective, but does serious damage to your credit score. You may commit to a secured or unsecured loan , transfer outstanding debt onto a new or existing line of credit, or pool your debt on a balance transfer credit card. You may find options that are better than consolidation after crunching some numbers. Your budget should also include putting money into an emergency fund for job losses, a leaky roof and other unexpected costs. Creditors may be especially willing to work with you if your debt is due to a job loss, health emergency or other extenuating circumstances. A debt management plan is an agreement between you, your creditors and a nonprofit credit counseling organization. Track your spending on a regular basis and evaluate the differences between your needs and wants. Lewis teaches her clients to live off predetermined amounts of cash set aside in envelopes — a separate stash for groceries, entertainment and transportation, for example. A credit counselor, money coach or financial adviser can comb over your spending and help you identify trends. According to a Gallup survey , the average American credit card holder has 3. For-profit debt settlement companies negotiate with creditors on your behalf and charge you a fee, often a percentage of the amount of debt that is forgiven. In other cases, the problem could be as simple as reducing overspending on entertainment. Lay out all of your outstanding debts, shop around for interest rates and even pick up the phone and call your creditors to see if you can negotiate a lower rate. The Federal Trade Commission barred such fees for any firms that contact you by phone but fees can still be hefty. Perhaps you were pouring too much of your income into basic expenses such as housing, car payments and living costs, and you need to evaluate ways to downgrade. Agencies accredited by these organizations must maintain standards and their counselors have to complete a certification program. Until a few years ago, another common practice among debt settlement firms was to charge clients fees before obtaining results. Not all agencies work with all creditors, for instance. Be proactive in your search for the best consolidation plan. A credit card balance transfer, for example, will likely cost percent of the amount of money transferred onto the new card.
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