Millions of people struggle with credit card debt, barely able to make the minimum payments. they watch their credit card balances grow each month—longer after they’ve snipped their plastic and sworn off making additional charges—because what they’re really paying for is the interest. They’re not making any dent into the principal (the actual amount charged for purchases), they’re just paying the credit card companies’ lending fees. Because of this, they can spend decades in debt with no hope of escape. Except for deb t consolidation. Debt consolidation allows you to transfer your debts into a lending arrangement with lower interest rates and easier terms. This means you are actually paying off your debt, rather than just keeping your creditor at bay. For many people, debt consolidation is the only venue for financial freedom.
However, when shopping around for a deb t consolidation package, it’s important to look at the terms, and keep your calculator at hand. You want something that will help your financial, either by giving you easier terms (so that you don’t skip payments and end up shouldering surcharges and late fees) or pushing down your interest rates. And for you to truly see if that debt consolidation package works, you have to look at annual percentage rate, or APR.
There are different types of APR, and when you talk to a deb t consolidation company, ask them what kind of APR they will be charging, and how much. For example, will they have an introductory APR? Meaning, they will apply a certain rate for a particular and limited period of time, which will give you breathing room as you “catch up” with your debt through more generous interest rates. However, this is only effective if you can see yourself making large headway—either by making bigger payments—within the time period where the introductory APR is applied. Also ask about their balance transfer APR. Again, ask how long this rate will be applied, and what kind of interest rates you’ll be given once that period lapses.
You should also ask for a breakdown of balance transfer fees. Some deb t consolidation companies waive these fees, as part of their promotion efforts, but you should look at the fine print. They may be hiding these fees under higher interest rates. The best way to compare various packages is to compute the total amount you will be paying, some websites offer online calculators for easy computation.
Another advantage of deb t consolidation is that it’s more convenient. Instead of paying several creditors—credit card, mortgage, salary loan—you make one payment to one company. This reduces the risk of you forgetting to pay, and cuts down on the hassle of issuing several checks on different due dates. It is also easier to negotiate for some leeway on the months that you can’t make a particular payment. Many people also find that deb t consolidation simplifies the task of budgeting, and helps control the temptation to “skip” paying a particular bill. They set aside a particular amount each month, which is sent to one account.
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