Holiday Financial Hangover? Consider Debt Consolidation

Jan 06, 2016

consolidate-debt-blogWith the rise in the cost of living still surpassing income growth, you’re not alone if you’re seeking relief from credit card debt after a season of spending. Some estimates claim that the average U.S. household with credit card debt has outstanding balances totaling more than $15,000, and is spending more than $2,500 per year in credit card interest. If you carry a balance on multiple credit cards, consolidating your credit debt to one credit card that offers more favorable terms or to a fixed rate personal loan can provide major benefits to your financial well-being and quality of life. Undecided about whether consolidating your credit card debt might be right for you? Here are some reasons to consider it:

You want to make managing your financial life easier:

Trying to manage multiple accounts with various due dates is not only time consuming, it can also provoke anxiety around your finances and increase the possibility of incurring late fees and other penalties. By streamlining multiple payments into only one per month, you’ll eliminate stress as you reduce the mental energy you spend on paying your bills. With only one payment to make each month, you’ll also limit the possibilities of being penalized for any late payments.

When reviewing your options for debt consolidation, be sure to consider how comfortable you are with interest rate changes and how important it is to you to have a predictable budget. A fixed rate personal loan may be the best choice for you if you want the peace of mind that comes from knowing that your payments won’t change from month to month. Unlike a line of credit, a personal loan also has a specific term, so you’ll know exactly when your debt will be paid off. Do realize however, that a personal loan requires that you continually exercise a certain degree of discipline, since it doesn’t allow you to fall back on a “minimum payment” option as a credit card does.

You want to save money:

If you consolidate all of your outstanding credit card debt into one monthly payment that offers you a lower interest rate, you can realize substantial savings—often hundreds of dollars per year depending on your situation. As an example, reducing the interest rate on $10,000 of debt from 11 percent to 9 percent will save you $200 per year in interest*.

When reviewing credit card debt consolidation offers, be sure to take into account annual and/or balance transfer fees. If you’re currently paying an annual fee on one or more credit cards, take a hard look at whether the benefits of using these cards could be outweighed by the fees you are paying. With high competition for customers, many credit card issuers offer accounts with no annual fees. To offer further incentive for you to consolidate your credit card debt, some credit cards also waive fees for transferring your balances, so for more savings, so be sure to look for offers with “no balance transfer fees.” If you decide that a personal loan is the best debt consolidation option for you, you’ll also avoid any annual or balance transfer fees.

You’re trying to improve your credit rating:

Consolidating your debt can help you raise your credit score by positively impacting what is referred to as your credit utilization rate. Simply put, credit utilization is the percentage of credit you’re using as compared to your credit limits. If you have $8,000 in credit card debt but can charge up to $10,000 on your credit cards, your credit utilization rate is 80 percent. Credit utilization is an important variable that affects a person’s credit score. Ideally, your credit debt should be 30 percent or lower than your total available credit.

By transferring your credit card payments to a card with a lower interest rate, your payments will go further toward paying down your balance each month—lowering your credit utilization and boosting your credit standing. But using a personal loan to consolidate your debt can potentially offer even better payoff in terms of improving your credit! This is because a personal loan is issued in one fixed amount and does not operate as a revolving line of credit in which your available funds change after you make a payment. Since only revolving credit is included in calculating your credit utilization, eliminating this kind of debt can immediately help raise your credit score.

Are you ready to get on more solid financial footing with relief from your high-interest debt and multiple monthly credit card payments?

Beginning January 15, 2016, for a limited time, we’re offering additional motivation to help you get a handle on your money and avoid budget surprises with a fixed rate Personal Loan. For loan amounts of $10,000 and above, you’ll receive a Cruise Vacation Certificate good for two people for five days/four nights! Cruise destinations are throughout Mexico, the Bahamas and Western Caribbean. Click here for full details and restrictions. And keep in mind that at SFPCU, our Visa Platinum credit card charges no balance transfer fee. To apply online, click here.

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