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Consumers often get caught out with having numerous credit cards prior to applying for new credit. Even if the credit cards have not been used and have no outstanding credit balance on them, they can still be extremely detrimental to your overall loan servicing capacity and your credit score. In a tight credit environment such as the one we are currently experiencing, credit card consolidation seems to be the answer.

Credit Card Consolidation Program: What Is It?

In essence as the name suggests credit card consolidation is having all your credit cards with their balance rolled into one finance facility. In other words, you consolidate credit cards into one card or loan much like the debt consolidation plans we discussed previously. Consumers usually use credit card debt consolidation in order to either get a lower rate than the existing credit interest rate which they are paying on their credit cards or to fix in their existing credit card rate at a level at which they feel comfortable. In certain cases a credit card consolidation program can also be very useful if you are struggling to keep up with the minimum payments on various credit cards and would rather just make one larger repayment.

Credit Card Consolidation Help

There are a number of ways to consolidate credit cards. Some of the methods for credit card consolidation help are listed below:

• Principle Increase On Your Home Loan: In certain cases if you have unused or lazy equity in your owner occupied or investment property, you can get your mortgage provider or bank to do a principal increase for you. In this case they will revalue your property and will increase the mortgage loan amount based on the valuation. It is often best to extend the loan up to 80% of the property value in order to avoid any Loan Mortgage Insurance Implications (LMI). With the surplus drawn out funds, you can pay out your credit cards and successfully consolidate credit cards. In this credit card consolidation program, the new debt is just added to your existing home loan balance and your repayments increase slightly. This form of credit card debt consolidation is beneficial in the sense that it allows you to pay off your debt over the life of your loan and at a much lower interest rate.
• One Credit Card: If this is your chosen method of credit card debt consolidation, you must approach any one of your credit card companies and ask them to consolidate your other credit cards. Your existing credit card company, after assessing your application and if you are approved will increase your existing credit card limit. This will allow you to pay out all your other outstanding credit cards and thereby just have one credit card with a larger outstanding balance. However remember to understand the terms and conditions of the increase and also make sure that you are comfortable with the new rate of interest and the minimum payments of your credit card debt consolidation loan.
• Credit Card Consolidation Loan: Nowadays it has become very common for financial institutions to issue clients credit card consolidation loans. These loans are issued with the purpose of enabling consumers to pay off their credit card debts. These loans operate much the same as a personal loan. However consumer might want to note that the interest charged on these credit card consolidation loans is lower than that previously charged on your credit cards.
• Credit Card Consolidation Programs: In case you are unsure about what your course of action should be to consolidate credit cards, approach your bank or financial institution and talk to them about their credit card consolidation programs, if any. These credit card debt consolidation programs are designed to take into consideration your personal circumstances and create a credit card consolidation plan based on that. These programs help reduce your interest repayments and consequently pay off your credit cards.

As we have seen, credit card consolidation has its own advantages. However, prior to considering credit card consolidation it is advisable that clients seek financial advice and take into consideration their own circumstances.

References:

1. Knee Deep in Debt – Federal Trade Commission

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Paying off your credit card debt soon is likely to have a big impact on your credit report. This statement holds true especially in this economic climate where lenders prefer to grant new credit to consumers who have minimum credit and good repayment capacity. Hence paying off your credit card debt might be a good credit card debt solution before applying for a new credit facility like a home loan or a vehicle loan.

Pay Off Credit Card Debts – Advantages

Paying off credit card debts definitely has its advantages, all of which together can contribute greatly towards improving your credit report

• Decreased Credit Card Debt:The biggest and most obvious advantage of paying off credit card debts is of course that it reduces your credit card debt  and reduced debt is a financial situation everyone wants to be in.
• Increase Your Spending Money: Making more credit card repayments, means only one thing, you have lesser money in your hand to spend. Paying off your credit card debt will ensure that your spending money in hand increases.
• Impetus To Your Credit Score: The lesser the debt you have the better the chances of improving your credit report. As you are aware, paying off your credit card debt proves that you have good payment history and also reduces your overall debt. This can greatly help boost your credit score.
• Better Serviceability For Future Loans: Paying off your credit card debt, will ensure that your serviceability (the ability to obtain credit) on future credit contracts improves. Lenders look at applicants with minimal debt favourably and hold clients with prompt and good repayment history in high regard.
• No More Interest Payments: When you buy something on your credit card, you are liable for an interest payment on the value of the item purchase. Regular credit card repayments is a good credit card debt solution and this will mean that you will now be able to purchase goods without having to pay extra in the form of interest.
• Surplus Funds For Investments: While a credit card account can be helpful to build good credit, by paying off credit card debts, you are not only increasing your spending money but will also have surplus funds to contribute towards investment accounts or retirement savings accounts.

Credit Card Debt Solution How Tos
Paying off credit card debts is a great solution and some of these credit card debt tips might help to get you started on your mission to pay off credit card debts.

1. Monitor your spending habits and ensure that you are only spending on what you need.
2. Switch to using more cash. Most consumers find it rather difficult to carry cash around, but when you are trying to pay off your credit card debt this can really help.
3. Calculate your payments and always ensure that you have sufficient monies in your account to cover the payment.
4. Create a budget for yourself and use any surplus funds that you might have towards paying off your credit card.
5. Freeze your credit cards. This means literally freeze them. Do not use your cards if you are trying to pay them off. You might even want to cut up your credit cards to ensure that you do not use them.
6. Try and consolidate your credit cards. Instead of having numerous credit cards with small balances, it might be better to just have one credit card with a larger balance. This will help you keep track of your payments and in turn you will be making one payment instead of many. This will also be particularly helpful when you are making increased contributions.

Based on the above facts consumers can conclude that paying off your credit card debt not only has a positive impact on your credit score but also means that you can use those surplus funds towards obtaining more desirable credit e.g. a mortgage. Consumers can also use these surplus funds towards retirement contributions or even towards starting a savings pattern or reducing other debt you might have.

Reference:

1. Tips for Paying Off Credit Card Debt – Credit.com

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Prepaid credit cards are a way around for consumers with poor credit history. With lenders and banks rejecting applications of consumers with bad or marginal credit and the new Credit CARD Act 2009 in action, prepaid credit cards provide the ideal solution. In a complex business environment where you need a credit card for almost all important transactions, whether it is booking an airline ticket or making hotel reservations or even shopping online, not having a credit card might just put you in a spot. This is where pre paid credit cards come in.

Pre Paid Credit Card – How Does It Work

A pre paid credit card is much like opening up a savings account and linking a debit card to it. In order to activate your prepaid credit card you will need to open up an account and deposit funds into it. Your prepaid credit card is linked to this account and you can use it just like any other normal credit card. Once you have exhausted the funds in the account, you will no longer be able to make transactions on your prepaid credit card until you deposit funds in the account again. This is ideal for individuals with poor credit histories owing to the fact that prepaid credit cards for bad credit consumers give you the freedom of a credit card without the attached liability. Consumers must remember that when they initially deposit money into their prepaid credit card accounts they are charged a deposit fee of around $5-$10. This is a recurring fee and is charged every time consumers deposit money into the account.

Difference Between Pre paid Credit Cards And Debit Cards

In essence there is no real difference between prepaid credit cards for bad credit consumers and debit cards so to speak. Neither of these cards affect your FICO score as they are directly linked to accounts which have funds in them. Pre paid credit cards just as debit can be used almost anywhere, except car rentals, where debit cards cannot be used. Another difference between the two cards is that prepaid credit cards charge you a deposit fee every time a deposit is made into the account, whereas debit cards do not.  Prepaid credit cards are for individuals with either a poor credit history or for those who do not wish to have a liability of a credit card but want all its features. Debit cards are more popular among teenagers and students, owing to its no liability factor and you only spend what you have.

Prepaid Credit Card For Consumers With Very Poor Credit – Advantages

Prepaid credit cards for consumers with very poor credit has its advantages.
•    Consumers can only spend what they have in their prepaid credit card account and once they have exhausted the funds, the prepaid credit card cannot be overdrawn.
•    Pre paid credit cards do not affect your FICO score in any way therefore avoiding the worry of a credit card balance affecting credit reports.
•    Prepaid cards are beneficial for customers who want to curtail their spending habits yet would like the features and freedom of having a credit card.

Pre Paid Credit Cards For Bad Credit Consumers – Disadvantages

While pre paid credit cards for bad credit consumers have their advantages, these prepaid cards have their drawbacks too.
•    Consumers are charged a deposit fee every time they deposit funds into the prepaid credit card account.
•    Certain online merchants do not accept prepaid credit cards as payment. This stems from the fact that they are unsure that the prepaid credit card will be able to cover the transaction.
•    Obtaining goods on prepaid credit cards via finance can be very difficult as instalments are deducted from credit cards at fixed intervals of time and retailers or merchants may not accept prepaid credit cards as a repayment options.
For bad credit and poor credit consumers looking for the freedom of a credit card but attempting to avoid the credit card debt, a prepaid credit card is a good option to use until you get your credit report back on track.

Reference:

1. What Are Prepaid Credit Cards – WiseGEEK

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In the recent past the US has seen a surge in credit card debt and has increased 25% since the last decade. At present, nearly three quarters of all US homes have a credit card with nearly half of those carrying a credit card balance. By the end of 2008 the penalty interest paid by customers had hit nearly 15 billion dollars.

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Credit scoring reports are determined based on several different factors and your credit card balance is one such factor. Factors such as late payments, too many credit inquiries, defaults on repayments, bankruptcy etc; all influence your credit score. To build good credit and a high credit score it is important to keep all these factors in check. While the balance of your credit card accounts do impact your credit rating, if all the other factors are fine, your credit scoring report will not be heavily impacted by your credit card balance.

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In the current global economic climate many credit card holders are striving to keep up with their credit card bills to prevent any defaults of their credit report. Rising household costs means that the average consumer is now dealing with more expenses at a time when job losses are rife. Consolidating or reducing your credit card debt can go a long way to reducing the stress on your monthly budget and rebuilding your credit report.

Bob Jones, 45, of Phoenix, AZ had several defaults on his credit card debt and was feeling the pressure of his credit card commitments. Bob knew that this was affecting his good credit report and may hamper his long term credit worthiness. [...]

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