The Basics of Consolidating Credit Card Debt

In the United States, nearly eight in every ten adults have some form of debt on the books. From student loans and mortgages to credit card debt and auto loans, debt payments on a month to month basis can be a significant portion of the budget for many Americans. Credit card debt is one of the most costly forms of debt given the double-digit interest rates on most revolving accounts. A recent study by Experian shows that 43% of adults in America carry a balance on a credit card, averaging $6,354. Without a plan to pay off credit card debt, it can quickly feel like there is no light at the end of the tunnel. 

There are, however, strategies consumers can use to get out from under the burden of credit card debt. Debt consolidation is one way to efficiently pay down revolving card balances, with potentially lessinterest costs and a more streamlined payment plan. Here’s what you need to know about consolidating credit card debt. 

What is Debt Consolidation?
Debt consolidation is simply the process of paying off multiple debts with a single consolidation strategy. Thiscan be donewith the help of balance transfers from other credit cards, or through a fixed-rate debt consolidation loan. In either case, debt consolidation puts you as the borrower in more control over your debt repayment. Instead of having multiple cards to manage and monthly payments to make, you have a single debt where you focus your attention, often with a lower cost due to a reduced or zero interest rate.

How Does Debt Consolidation Work?

The process of debt consolidation is simple in theory, through one of the two most popular methods. Balance transfer credit cards and debt consolidation loans allow you to use the available credit line or the proceeds from a loan to pay off revolving accounts. Instead of paying for multiple debts, then, you have a single payment with either a balance transfer credit card or a debt consolidation loan. 

Balance transfer Credit Card
A balance transfer credit card is one debt consolidation strategy that can save you both time and money in paying off your debts. With this process, you take out a new credit card that offersa promotional balance transfer. With the available credit line of the new credit card, you transfer one or more balances from other credit cards. The old cards are then paid off, and the full balance is now on the new card. 

With a balance transfer offer, borrowers receive a low or zero interest rate for a setperiod, specifically for the balance transferred. That timeframe can range from six to 18 months. Without interest accruing as it would on higher-rate cards, a balance transfer gives you the opportunity to pay off your balance faster as each monthly payment is going toward principal only. However, if you do not pay off the balance during the promotional period, you may be charged interest on any amount left over. 

Fixed-Rate Debt Consolidation Loan
A fixed-rate debt consolidation loan works differently than a balance transfer, but with similar benefits. First, you apply for a new personal loan through a bank or online lender, and with the loan proceeds, pay off revolving credit card balances. Instead of having to pay multiple cards each month, you simply pay your monthly loan payment over time. A debt consolidation loan may also have a lower interest rate than credit cards, depending on your credit score. You have a set repayment period, typically ranging from three to five years, providing a light at the end of the tunnel. 

The Pros and Cons of Consolidating Credit Card Debt
There are several pros and cons of consolidating credit card debt which you should consider before selecting a balance transfer credit card or a debt consolidation loan.

Pros

  • With either strategy, all your debt payments are under a single monthly payment which can be easier to manage over time
  • Qualified borrowers with high credit scores may receive a lower interest rate with either a debt consolidation loan or a balance transfer credit card
  • You have a fixed monthly payment with a debt consolidation loan which may be lower than credit card payments

Cons

  • You may pay a balance transfer fee, from 1% to 5% of the amount transferred, or a debt consolidation loan origination fee, bothof which can increase your total cost of borrowing
  • A debt consolidation loan may have more stringent credit requirements than opening a new credit card, so some borrowers may not qualify
  •  Consolidating debt with either strategy does not always fix financial issues, especially if you continue to add debt while you pay down your consolidation loan or balance transfer card

Why People Find Themselves in Credit Card Debt
Debt comes in many different forms, as does the reason why it exists in the first place. It is common to face financial challenges that can lead to debt, including making big-ticket purchases on credit, missing payments, and using a credit card for cash. Fortunately, there are ways to avoid these issuesthat lead to costly credit card debt, if you know what steps to take.

Using a Credit Card for Major Payments
Many people appreciate the convenience of credit cards when making major purchases or covering financial emergencies. From paying for an unexpected medical bill or car repair to buying an impulse purchase, credit cards make it far too easy to live above your means inthe moment. Using credit cards to pay for these items can add up to a significant cost if the balance is not repaidin a short period of time. Interest accrues each month a balance remains on the card, and that can make it seem as though there is no way out. 

Having an emergency fund for unexpected financial needs or a targeted savings account for big-ticket items helps you avoid using credit and accruing interest. An emergency fund should be between three to six months of expenses, set aside in a savings account for bills that pop up. A targeted savings account is a vehicle you can use to save for specific goals, like a major purchase. These two strategies can help you avoid credit card debt.

Missing Monthly Payments
Missing monthly payments on a credit card can also lead to a cycle of debt that is hard to overcome. Not only are you allowing interest to accrue on the unpaid balance, most credit card issuers also charge late fees and penalty APRswhen a payment is missed. These charges add up over time. 

Avoiding missed credit card payments is easy if you establish automatic payments from your checking or savings account. Take a look at the due date for each of your credit cards and set-up an automatic draft to cover at least the minimum payment each month. In an ideal world, automatic payments would be enough to pay off the entire balance each month so you never have to worry about racking up interest charges. Havingyour credit card payments on auto-pilot means you won’t miss a payment that leadsto excessive fees and added interest.

Using Your Credit Card for Cash Advances
Some credit cards allow you to take cash advances. These are akin to an ATM withdrawal with your debit card, giving you immediate access to cash, up to your available credit line. Cash advances can be helpful for coveringunexpected bills or cash-only transactions, but they add up quickly. Credit card issuers may charge a higher interest rate on cash advances, as well as cash advance fees that range from 1% to 5% of the amount advanced. If you don’t pay off the balance in full each month, these extra expenses are costly. 

Instead of using a cash advance from a credit card, you should take a close look at your cash flow for the month to see what’s available. Using funds already in your checking or savings account for an unexpected bill ora larger purchase is more cost-effective than taking cash from your credit card. Don’t get swayed by the convenience factor, and consider the full costs before completing a cash advance.

When is it a Good Idea to Consolidate Credit Card Debt?
Credit card debt consolidation is a good idea if you can secure a low-interest consolidation loan or a low or zero balance transfer credit card. The purpose of a debt consolidation strategy is to streamline your monthly payments, lower your total cost of borrowing, or a combination of these two benefits. If you can achieve this through a loan or a balance transfer, it makes sense to do so. However, it is important to know that you need to have relativelystrong credit to get approved for a debt consolidation loan or a balance transfer card. You will also need to be committed to a repayment schedule that offers the most cost savings, as well as self-controlto not add to your debt once you implement a consolidation strategy. 

Andy Kearns is a Content Associate for LendEDU and works to produce personal finance content to help educate consumers across the globe. When he’s not writing, you can find Andy cheering on the Lakers, or somewhere on a beach.

Home Equity Loan vs. Home Equity Line of Credit – What’s the difference?

With the equity you’ve built up in your home over the years, you could be sitting on a lot of money! When you’re ready to put your home’s equity to work, you may be wondering which option is best for you – a home equity loan or a home equity line of credit (HELOC).

One of the most common misconceptions is that home equity loans and HELOCs can only be used for home improvements. These loans can be used for a variety of needs, including consolidating high-interest debt, financing a college education, buying a new car or taking a dream vacation.

Choosing the loan option that’s right for you starts with an understanding of equity. Equity is the difference between the value of your home and the remaining unpaid principal balance of your mortgage. For example, a home worth $250,000 with a principal balance of $100,000 remaining has $150,000 in equity.

So what’s the difference between a home equity loan and a HELOC? A home equity loan is a one-time loan for a fixed dollar amount, at a fixed interest rate, with a fixed term of repayment. This type of loan has a pre-determined monthly repayment amount and an amortization schedule for up to 15 years. Home equity loans are great for specific, one-time purchases like a new car or a home remodeling project.

A home equity line of credit – also called a HELOC – is a variable-rate loan that can be drawn down, either all at once or at different times. You can borrow up to the credit line maximum, but you’ll only pay interest on the funds you use. For example, if you’re approved for a $50,000 equity line but only borrow $15,000 right now, you are only charged interest on the $15,000. Once you have repaid the amount borrowed, your credit line is fully renewed and available for borrowing again.  Most HELOCs feature a 10-year draw period followed by a 15-year repayment period. HELOCs are a smart way to pay for recurring expenses like college tuition.

An allU.S. Credit Union loan specialist can help you determine whether a home equity loan or line of credit is the best option for you. For more information about home equity loans and lines of credit, visit https://alluscu.com/home/loans/ or stop by today and speak to Robin, Stephanie or Celeste.

Should You Consolidate your Debt Into One Low Payment?

Keeping up with numerous debts from a variety of sources can leave you feeling like you are spinning out of control?   Fortunately, allU.S. Credit Union has several solutions that can steer you in the right direction and save you money and stress!

Should you consolidate your debt?  This calculator is designed to help determine if debt consolidation is right for you.  Fill in your loan amounts, credit card balances and other outstanding debt.  You can then see what your monthly payment would be with a consolidated loan.

At allU.S. Credit Union, we offer many options to help you pay off your credit cards, improve your credit rating and live debt free!  Check it out:

Pay off existing debts with an Auto Title Loan featuring rates as low as 2.49% APR.  You have the ability to borrow up to 50% of your car’s value to help drive down your debt!

Transfer high-rate credit cards to the allU.S. Visa Credit Card and save BIG with:

  • Rates as low as 8.99% APR
  • No annual fee
  • No cash advance or transaction fees
  • No balance transfer fees

Check out even more advantages at https://alluscu.com/home/loans/.

You can kiss your high-rate debt goodbye by consolidating your debt with an allU.S. Personal Loan.

  • Rates as low as 7.0% APR
  • Loan amounts up to $25,000
  • No collateral required

Debt consolidation at allU.S. Credit Union is a smart and easy way to combine all your high-interest debt into one low payment. You’ll lower your interest rate (which could save you money every month) and more of your payment will go toward the principal balance, meaning you’ll pay off your debt more quickly! And best of all you’ll make just one easy payment each month!

Don’t wait! Consolidate your debt and save with allU.S. Credit Union. Need help determining if debt consolidation is a good option for you?  Just stop by or call Robin or Stephanie at 831-540-4627 and they will be happy to help.  You can also apply online at https://www.flexteller.net/ActionMultiplexer?Action=ACT0142&CUID=mon

Spring Clean your Finances

After a year of spending, saving, paying off bills and racking up rewards points, your financial life can get a little messy. Now that tax season is over, it is a great time to regain control of your finances. When you de-clutter your accounts, paperwork and budget, you’ll find it’s a lot easier to make the most of your money.

Roll up your sleeves, dust off your statements and follow these tips for finances that sparkle:

  • Streamline your banking. Close up old accounts, switch to online bill pay and sign up for e-statements, a no-cost, paperless way to view your monthly statements via the Internet.  eStatements can help you avoid identity theft or mail fraud.  Shred year-old bank statements, expired warranties, old Social Security statements and tax documents that are over seven years old.
  • Consolidate your debt. Consider rolling all of your high-interest payments into one low-rate personal loan. Close credit cards you don’t need and create a payment strategy to lower your debt. Plan to pay off credit cards with the highest interest rates first.  We are now offering a low-interest loan starting from as low as 3.0%.  It’s the most cost effective way to fix some of the financial issues in your life.  Contact the branch for details.
  • Organize your savings. Many households have multiple savings accounts, including IRAs, CDs and 401(k)s. Consider moving all of your savings plans to one bank and consolidating all IRAs to one account. Talk to your employer about moving old 401(k) accounts into the one at your current job, or rolling them to a self-directed IRA. Finally, increase your 401(k) savings so that at a minimum you are saving enough to earn a full match from your employer.
  • Plan your estate. Update or create your will. It’s a fairly easy and inexpensive process that people often put off for obvious reasons. If you have any property (car, house, land, flat-screen TV, etc.), a will prevents lengthy legal battles and guarantees the right people receive your belongings upon your passing.

Need help tidying up? Stop by allU.S. Credit Union and talk to Robin or Stephanie or give us a call. We’d be more than happy to help you clean up your finances!