Denice R. Preston
Multiple credit cards can be good, especially if you get different benefits, like miles, cash back, or merchant benefits, with a department store card. The monthly payments can become overwhelming if you lose track of your balances and what you owe.
Consolidating credit cards can make managing multiple credit card debts easier and create one monthly payment. Reducing your credit cards can help you make your monthly bills more manageable and give you peace of mind. Is consolidating your credit card debt worth it? It all depends on several factors.
The pros and cons of consolidating
Consolidating is generally helpful if it accomplishes the following:
The downside? The downside? In other words, consolidating credit card debt doesn’t make it easier to pay off your debt.
Consolidating your debt could actually make it worse. This is especially true if you have open credit cards and are still dealing with the original problems that led to you getting into debt. Consolidating your debt could lead to you charging more on your old credit cards than you are paying off the consolidation loan.
If you decide to consolidate your debt, be sure to understand the terms and interest rate.
Debt consolidation loan
Consolidating multiple credit card debts can be done to obtain an unsecured loan. The process involves looking for a personal loan and weighing all options. Start by contacting your bank or credit union and asking about their terms.
You will need to complete paperwork and provide proof of your financial status before you can apply for a consolidation loan. Poor credit scores may make it difficult for you to get a consolidation loan that offers the terms that will make your debt repayments easier. You may not be eligible for consolidation loans if you have already missed payments.
Once approved, the loan will be used to pay all outstanding credit card debts. You may be required to close other credit cards. Next, you will need to start paying the loan.
Stay out of debt and pay off your debt
Paying off all your debt is one of the best financial decisions you can make. Start by paying off your highest-interest debt first. This includes credit cards and loans with high rates of interest. After you have paid all your debts off, pay off your mortgage. Consider splitting your monthly mortgage payment in half, and then paying bi-weekly. Pay as much as you can. This will reduce your mortgage by years and help you save thousands of dollars on interest.
Avoiding monthly debt payments or minimizing them is a smart strategy that can help you achieve your financial goals. As long as you have a spending plan, and allocate money each month for your priorities, you will be able to keep your financial goals in sight. You might be wondering how you can fund your financial goals. The average Canadian car loan payment costs $570 per month. This money can be invested in mutual funds and index funds, with an average return of 11%. That’s the same rate that the S&P 500 has earned over the past 70 years. By the time the 65-year-olds reach 65, they will have more than $4.2 million. Now we have to ask: Is having a new car worth $ 4 million? We suggest that you consider purchasing a quality used vehicle and investing the remainder. You could use your old car payment to fund retirement or other financial goals. The person in the above scenario would still have more than $1 million if they had saved the car payment between 40 and 70.
Save for the Future and Prepare for the Future
It is important to save money for the future. You will need credit in times of financial difficulty if you don’t set savings objectives and work hard towards them. To supplement your small government pension, you might need to work into retirement. If you have debt, it may be difficult or impossible to retire.
You should plan for your retirement. Start saving for your retirement. You can also use this money to save for a rainy day in case you lose your job, or experience another financial setback.
You should make sure that you have enough insurance. Accidents can happen. One in four people is injured on the job. Your home can be damaged by natural disasters that can cause damage of thousands of dollars. You should have sufficient insurance to cover the area you live in and your lifestyle.
Make a will to decide who will inherit your assets or care for your children after your death. This allows you to decide who will benefit from your hard work.
You don’t have to wait too long to start saving
Because compounded interest works, even at low rates, people who start saving for retirement earlier don’t need to save as much.
Two people can save for retirement if they start at 21 and 31 respectively. The 21-year-old can save $100 each month until age 65, and then accumulate $253,000 to retire (assuming a 6% annual return). To have the same amount at age 65, the person who begins at 31 will need to save $190 each month.
Transfer of balance
This method transfers all of your card balances onto a new credit card, similar to consolidating debt. Apply for a card that offers favorable terms such as a 0% introductory APR over 12-18 months. Like a consolidation loan application, your credit score is more important than your chances of approval.
Once approved, the card can be used to pay off any balances on other cards. This is essentially transferring the balances to the card and then making the payments.
If the rate is 0%, this can help you to get ahead. However, it will return to regular APR after the introductory period. If you miss a payment, many promotional rates will also end immediately.
Debt management plan
A debt management program (DMP), includes the best attributes of a consolidation loan (single monthly payments, lower interest rates), but it is not a loan and does not require credit to qualify.
A nonprofit financial counseling agency can help you review your finances to determine if a DMP is right for you. This process can be completed online at MMI. If you feel the DMP is right for you, you will begin your plan by paying the DMP agency, who in turn will make payments to your creditors. The process will close your creditor accounts. Most creditors offer substantially lower interest rates when you participate in a DMP. This is why most plans can be paid off in less time than four years. Your DMP can be cancelled at any time. This makes it slightly less risky.
