3 Do It Yourself Alternatives To Credit Card Debt Consolidation
These days, dealing with credit card debt isn’t something that just a few people share in common. The reality is, the vast majority of consumers in the United States carry credit card balances in the thousands of dollars! When it comes to dealing with their debts however, many consumers jump at the opportunity provided by debt consolidation.
Unfortunately, in my experience, this has been a horrible move for several of my clients. Several of them admitted that they decided to consolidate their debts because they felt like they had not alternatives! With that said, I feel that it’s incredibly important to help consumers understand their options when it comes to dealing with credit card debt. Below are the 3 best alternatives to credit card debt consolidation designed for those in several different phases of credit card debt!
Your First Option – Negotiations and Planning
Who May Be Interested In This Option?: This is an option for those who, through various struggles, managed to keep their word on their financial obligations. The truth is, the most loyal customers are what make the big banks what they are! Therefore, if you have been loyal to your agreement, often times, your lenders will be willing to compete to keep you! Also, if you are experiencing a financial hardship, this is not the option for you. In this case, see Option 2!
How Does This Option Help?: This option helps by reducing interest rates on some credit cards. It also addresses aggressive constant payment and debt stacking plans to avoid hundreds or thousands of dollars in interest and years of credit card payments.
A Step by Step Guide to Negotiating and Planning Your Credit Card Debts Away
Step #1: Get Prepared – Before you do anything in life, more importantly, working with your finances, you should always get prepared. For this process, you will need to make a list of your lenders. This list should be in order from highest interest rate to lowest, paying absolutely no mind to balance in the order of lenders. It should include the lender name, customer service phone number, account number, interest rate(s), minimum payment and balance owed to each lender.
Step #2: Negotiating – Starting with the lender that charges you the highest interest rate, you should call the customer service phone number and choose the option to speak with a live representative. When asked, “What can I help you with?”, you should say something like, “I decided to create a profile of all my lenders today and noticed that I am paying the highest interest rate by far on this card. I love the service you provide but, I can’t see myself paying such a high interest rate with so many balance transfer offers available to me.”. At this point, you have told the lender that you are happy with service but not price. You will find that the answer in anywhere from 35% to 60% of these calls will be, “Let me see what I can do for you…You qualify for a ___% reduction! I will just need to read you the change in terms documentation and you will need to agree at the end…”.
Step #3: Come Up With A Constant Payment – The constant payment method is a great way to pay down your credit card debts off fast! It was designed around the idea that, if you are able to afford your minimum payment this month, you will be able to afford more than your minimum payment next month. This is because, by paying your minimum payment this month, you will reduce your balance. Your balance directly reflects your minimum payment, as it grows your payment grows. As your balance reduces, so does your payment! Therefore, by paying exactly the same payment each month, you will eventually be sending quite a bit of extra funds to pay off your principal balance! Simply add up all of your minimum payments. No matter if you can only afford the minimum payment total or, you can afford more than your minimum payment, write down the total amount of money that will be comfortable for you to pay each month.
Step #4: Start Stacking Your Debts – The debt stacking method is designed to target your highest interest rate first. Doing so, you can reduce the amount of interest you pay over the life of your debts by hundreds or even thousands of dollars. To do so, simply pay no more than minimum payments to all debts. Any extra funds that you have month after month should go to paying your highest interest rate debt off at an accelerated rate. Once you pay off the highest interest rate, send all extra funds to your next highest interest rate debt and continue to do so until all of your credit card debts are paid off.
Your Second Option – Credit Card Financial Hardship Programs
Who May Be Interested In This Option?: This is an option designed for consumers who are honestly experiencing financial hardships. When your income has been reduced or your expenses have increased to the extent that you are having an incredibly hard time paying your credit card minimum payments, you are most likely experiencing a financial hardship. This is not the option for consumers who simply want to consolidate payments or get a lower interest rate. These consumers should see Option 3.
How Does This Option Help?: During enrollment in credit card financial hardship programs, consumers will receive lower interest rates and minimum payments. However, the payments are structured in a constant payment method and will not fluctuate. This way, the consumers are generally out of credit card debt in no later than 60 months even in extreme circumstances.
A Step by Step Guide to Credit Card Financial Hardship Programs
Step #1: Get Prepared: As with anything in life, before signing up for a credit card financial hardship program, you have to get prepared. To do so, you will need to make the following 3 lists:
Your Credit Cards – This list should be just like the credit card list discussed in Option 1. It should include names of lenders, phone numbers, account numbers, interest rates, minimum payments and balances.
Your Expenses – Next, you will need to make a list of every monthly household expense you pay for. This includes rent/mortgage, utilities, food, insurance, unsecured loan payments, secured loan payments, gas for your car, medical expenses and anything else you pay for on a monthly basis.
Your Income – Finally, you will need a list of your income sources. It is OK if there is only one. However, if you have more than one income, make sure to jot it down. This list should include all forms of income with the exception of child support and alimony.
Step #2: Start Calling Lenders: Now, you are ready to start calling your lenders. Starting with your highest interest rate, call the customer service phone number and choose the option to speak with a live representative. When the representative asks, “How can I help you today?”, say something along the lines of, “I’m calling today because I’m having a very hard time keeping up with my minimum payments. I know that I owe the money and I have all intentions of paying. I just wanted to call and see if there is any assistance that you can provide to help me get back on my feet.”. At This point, you will most likely be directed to the financial hardship department for that lender.
Step #3: Be Honest With Your Representative: The financial hardship representative that you speak with will ask you several questions about your income, expenses and what caused your financial hardship. They do this to gauge the extent of financial hardship that you are experiencing to see if their help will be enough and if so, what would be the best way to go about helping you through the debt. Therefore, it is in your best interest to be very honest and upfront with the lender when they ask questions like, “Do you see this being long term or, do you foresee finding a solution within the next 12 months?” or “How much net income do you earn on a monthly basis?”.
Step #4: Keep Up With The Agreement: Finally, it is incredibly important that if you come to a financial hardship agreement with your lender, you keep up your end of it. Missing 2 or 3 payments a year could end up putting you in the same place you were or worse. Also, if you simply can’t keep your end of the agreement, always call the lender up front so, they know what to expect. You may find that they will make a new arrangement with you.
Your Third Option – Balance Transfer Credit Cards
Who May Be Interested In This Option?: This option is for those consumes who would simply like to reduce their interest rates or consolidate multiple payments into one without third parties. To qualify for these promotions however, you will need to have good to excellent credit scores. If you do not have good credit, you may want to consider Options 1 or 2.
How This Option Helps?: By transferring balances, consumers are able to reduce their interest rates through 0% short term and competitive long term interest rate promotions. Also, with a high enough credit limit, balance transfer credit cards can be used to pay off multiple debts creating one, easy to manage payment.
A Step by Step Guide To Transferring Your Debts Away
Step #1: Get Prepared: You have probably noticed a trend in the first step of all these options. To get prepared for this option, you will need to make a list of all of your credit card debts. This list should be in order from highest interest rate to lowest and include lenders, account numbers, interest rates, pay-off balances and pay-to addresses.
Step #2: Compare Balance Transfer Credit Card Offers: Now, it’s time to figure out which balance transfer credit card is best for you. To do so, compare several different balance transfer cards. When comparing, pay attention to promotional and long term interest rates, balance transfer fees, annual fees, all other fees, rewards and your knowledge and trust of the lenders that provide the offers.
Step #3: Apply For The Offer That Fits You Best: When applying for any credit card, it’s incredibly important to be honest. Many consumers make the mistake of fluffing up income a little bit to get a higher credit limit amongst several other white lies. These types of things can cause you to be denied for the credit card all together or even worse, you may be approved for a higher credit limit than you can handle resulting in a future financial hardship!
Step #4: Transfer Your Balance(s): Finally, it’s time to transfer your outstanding balance or balances to your new low interest rate credit card. To do so, when you card comes in the mail, call the customer service phone number on the back. Choose the option to speak with a live representative and ask the representative to make the transfer or transfers for you!
The Final Conclusion
Although, credit card debt consolidation may be a great option for some consumers, it is not the best option for all of them! There are several other great ways to get out of credit card debt no matter what phase of debt you are dealing with. I hope that you’ve enjoyed my article. More importantly, I hope that it has give you enough knowledge to inspire you to take charge with regards to your outstanding debts.