Credit card debt is the kind of debt that gets most people into trouble. This due to the outrageously high interest rates charged by credit card companies. Because of this, reducing the costs associated with credit cards is a good idea.
Here's a way to consolidate your credit card debt into just one monthly payment ... even if you have bad credit.
How to Consolidate Credit Card Debt with Bad Credit
How can you consolidate all your credit card debt into one monthly payment, even with bad credit? If you have bad credit, traditional debt consolidation options may not be available.
For example, a personal loan for debt consolidation may not be an option. Refinancing your home or taking out a second mortgage may be out, as well.
Even if none of these options are available, you can still try consolidating your credit cards into one. More on this below ...
Also, heads up:
Debt Settlement vs. Debt Consolidation
Debt Settlement is also referred to as debt negotiation, negotiated debt settlement, and sometimes incorrectly called debt consolidation. Debt Settlement means that your debt is negotiated down to a reduced amount and paid off in a lump sum.
If you're interested in this, see below:
Settlement is one of the most effective choices available to consumers. It’s a great choice if you have more debt than you can pay off in 2-3 years. It's also a good choice if you are experiencing a financial hardship, and you're falling behind (or about to be) on your monthly payments.
Why would creditors choose to settle debts rather than simply charge you interest and late fees over and over again? Creditors know that if you get into such a bad financial position that you can’t pay your monthly payments, not to mention the amount of money consumers pay in interest and promotional fees. That's why creditors are typically willing to settle for a lower amount, given your specific situation.
Back to Credit Card Debt Consolidation ...
Consolidate your credit card bills into one monthly payment
You may still be able to consolidate all your credit card debt onto a single credit card.
The goal here is to consolidate all your current credit card debts into as few as possible. It’s time to take a hard look at the different credit cards you currently possess, taking special care to note the interest rate each charged by each credit card.
Credit card interest rates vary widely. The goal will be to move as much credit card debt as possible to the card or cards with the lowest interest rate.
How do you actually consolidate your credit card debt?
You will need to call the credit card company with the lowest rate(s). Ask the credit card companies to transfer the balance(s) from your higher interest rate credit cards to the credit card with the lowest interest rate.
Make sense?
What if all your credit cards have horribly high interest rates?
What if the interest rates being offered by all the credit cards you possess are all in the 18% + interest rate range?
>> Bad Credit Debt Consolidation: Option #1
Call each of your credit card companies and ask if they will be willing to lower the rate.
Here's how you negotiate with your credit card companies:
Use the leverage that you are about to close your account. Politely explain that you will transfer your entire balance to a competing credit card and close your existing account, if you can’t receive a better rate should do the trick.
>> Bad Credit Debt Consolidation: Option #2
Another option is to take advantage of promotional offers. Many banks use promotional offers to attract new customers. Banks offer low introductory interest rates. Sometimes as low as 0% (!!!) for a set number of months if you transfer your credit card balance to their card.
Be careful, though ...
This is what you need to watch out for. The promotional interest rate usually only lasts a year. The credit card's interest rate jumps--some may even say skyrockets--once the introductory rate ends. Watch out for that!
If that higher rate is still lower than your current credit card rates, awesome. This option works for the short and long term. This would be your best option.
NOTE: Credit card companies know what's going on here. The credit card companies have caught onto people jumping from credit card to credit card chasing the introductory rate. To combat this, many credit cards have written into their promotional offers interest rate penalties if the balance is moved again to another card within a certain period – usually 12 months. For example, the normal, higher interest rate will be retroactively applied to all outstanding balances. Ouch.
Problems with Debt Consolidation using Credit Cards
Being able to move around all these balances depends on a couple important factors.
First off, this debt consolidation strategy may not be available to you if all your credit cards are maxed out to their limits.
Second, your need a credit report that leads the credit card companies to believe you will eventually be able to pay off all these balances.
Warning: Make Sure You Have the Right Mindset First
Here's some good advice from reddit user u/bathroomsink23:
You need to make sure you are in the right mindset first. If you are not doing this to be done using credit cards its not worth it. If you transfer to a 0% card but then rack the debt back on the others its not worth it. I did this, but only after not using credit cards for 6 months. It was a big help to pay of debt.
There are a lot of good sites out there to compare cards. Just look for something with a 0% interest rate (preferability a 0 cost transfer fee as well) and the longest promotion period available. I would consider the normal APR as a secondary consideration as you are planning on paying of the balance within the 0% timeframe (see paragraph 1). However, if you cannot pay it off remember the remaining balance defaults back to the normal APR (probably over 20%).
Successful Credit Card Debt Consolidation: What's Next?
You have successfully consolidated your credit card balances to a few of your credit cards ... or just one.
You have lowered your interest rates on the credit cards which still have balances.
You have saved quite a bit of money in interest charges.
All good things! But, you still aren’t done.
While the balances may have been consolidated, you still have the credit cards. You still have credit card debt.
Keeping those cards is like placing candy in your pockets and will lead to even more trouble down the road unless you get rid of them. It’s time to take out a pair of scissors and cut those babies up.
Cut, cut, cut! Not just the credit cards that no longer have balances, but all the cards except the one with the lowest interest rate.
There is rarely a good reason to have more than one credit card even for those with no debt. You now have a single credit card. Your monthly payments on the same amount of credit card debt have been lowered, and you passed yet another large test on your commitment of getting out of debt.
Onto the next step ...
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