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

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

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

Credit Card Bill Of Rights – Protecting Consumer Credit Card Debt

The Credit Card Accountability, Responsibility And Disclosure Act or simply, the Credit CARD Act of 2009 introduced by President Barack Obama might just be a corner stone in the US financial industry. This new credit card legislation ushers in a new era of consumer credit card debt protection and acts as a credit card bill of rights for consumers. Under the new act the following will need to be observed by credit card companies:

• Retroactive rate increases: The new credit card act prohibits lenders from increasing rates at their wish. Only if the credit card debt has been unpaid for over 60 days can the rate be increased.
• Agreements posted online: According to the new credit card legislation the credit card issuers will need to post consumer credit card debt contracts online to allow more transparency.
• Shifting of payment dates: The credit card bill of rights prohibits the shifting of repayment dates by the credit card companies. If a certain date has been set out in the contract, it needs to be followed.
• Mailing of statements: Credit card companies are now required to mail out the credit card debt statements to consumers 21 days prior to the payment being due.
• Clearer and more transparent disclosure: The credit card bill of rights is aimed at doing away with hidden fees and charges and is targeted at bringing in complete client disclosure. This will enable consumers to make a more informed decision about credit card debt.
• Marketing to teenagers and college students: Under the new credit card legislation, credit card companies are being dissuaded from advertising their services to teenagers or college students.

Credit CARD Act 2009 – Effect on Consumer Credit Card Debt

The question on everyone’s mind at the moment is “How is it going to affect me?” The new credit CARD act will affect consumers in the following way:

• Lesser availability of credit: With the new credit card act in place, consumer credit policy across the board will be tightened thereby reducing the approval rate for new credit cards.
• Price of credit: The new credit card legislation has not placed a cap of fees and charges charged by credit card companies. This in the long run would mean that credit card companies may charge higher interest rates and fees on new credit card debt.
• Rating system to be used: Just as any other credit instrument, credit card companies will need to use a 5 star rating for consumer credit applicants and will have to disclose this rating on the approval and credit instrument.
• Higher repayments: With the increased interest rates charged by the credit card companies, it may lead to increased repayments, thereby affecting your net cash flow.

Credit CARD Legislation 2009 – Effects On My Credit Report?

While the new credit card legislation is an attempt on the part of the government to protect consumers, the credit card act is also an attempt to ensure that consumers live within their budget and not beyond it. Credit cards are meant to be used as a lifeline and not be solely dependent upon. Hence in the long run with the new credit card debt reforms, this will lead to lower overall debt on your credit report. In addition the regulation to not shift repayments dates will mean that clients will have better repayment history and eventually a better and improved FICO credit report.

Credit Card Accounts To Build Good Credit

Having credit card accounts is not necessarily a bad idea if you use them wisely. To build good credit, you must have a credit history and often applicants with no history on their credit scoring report find it hard to get new credit or loans. For this reason, credit card balance can be useful and help to build good credit. Even if you are in the low income bracket, you might be able to get a low credit limit credit card. However, only apply for a new credit card account if you can afford the repayments or it will just end up damaging your credit scoring report.

Close Credit Card Accounts For Credit Card Balance Transfer?

If you have a credit card balance with Bank A and Bank B comes along and offers you better interest rates, it seems the only logical thing to do would be to close your credit card account with Bank A and transfer your credit card balance to Bank B’s credit card immediately. But before you do that, consider what that means for your credit scoring report.

When moving from one credit card account to another, if the credit line on both accounts is the same, your “debt percentage” stays the same. Your debt percentage is the amount of money you owe in proportion with your credit line. So if you have a $5000 credit line on your credit card account and have used $2500 of it, your debt percentage is 50%. Credit card balance transfer from one account to another with the same credit line does not decrease your debt percentage at all. If your new account has a lower credit line, this increases your debt percentage.

Leave Credit Card Accounts Open For High Credit Score

Transferring your credit card balance to a new account makes sense when you can save money on interest but do it the smart way. If your credit card account with Bank A has been open for 5 years and you have only just opened a new credit card account with Bank B; Bank A is a valuable asset on your credit scoring report. Even if you do not use the account, leave it open. This gives you a larger credit line (Bank A + Bank B) but since the amount of money you owe remains the same, your debt percentage decreases and this is a good way of maintaining a high credit score. If you close your account with Bank A, your well-established credit scoring report history is deleted and you start afresh and this will affect your high credit score.

Build Your Credit With New Credit Card Accounts

Each time you apply for new credit, your credit scoring report rating falls slightly however if used wisely, new credit card accounts can help to build your credit. Here are some tips:

• To build your credit score, your new credit card balance should decrease your debt percentage so think hard before applying.
• Only apply for credit card accounts that you can afford to repay and really need.
• Applying for  too much new credit and too often will negatively impact your credit scoring report and you definitely do not want that.
• Credit card balance transfers to new credit card accounts with lower interest rates will save you money but consider the implications on your credit scoring report and act accordingly.
• If you transfer your credit card balance to a new account, leave the unused old account open for a few years to maintain a high credit score on your credit scoring report. This will help build your credit rating until you have established a repayment history on your new account.

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. A financial planner himself, Bob knew he had to take action immediately to prevent his credit card debt from crippling him financially.

A few simple credit card debt tips that could put you on the path to reduced debt and an improved credit report

1. Monitor your credit card spending habits

The first mistake people often make is to ignore their spending habits. If you are dealing with credit card debt, it is time to get rid of those unnecessary items on your shopping list.

2. Do not accept any further credit limit increases

It is very tempting to have your credit card limit increased and to have more buying power. But ask yourself a question, “Do I really need the increase?” or more importantly “Can I afford it?”

3. List all your credit cards in order of importance

If you have more than one credit card, list all of them in order of importance and note their corresponding minimum repayments. This will help you gauge your minimum monthly contributions for your credit cards. You should first settle those credit cards with a higher interest rate.

4. Speak to a representative from the Credit Card Company or the Bank

It might be a good idea to call the bank or the credit card company and inform them that you are currently in a difficult financial position. They might be able to help you by either reducing your minimum payments or you may qualify for a lower rate on your credit card. A reduction in interest rates goes a long way in paying off those credit card debts quicker.

5. Increase your monthly credur card contributions

You should try to increase your monthly minimum repayments on your credit cards. This not only helps you improve your credit report faster but also shows lenders and banks your dedicated approach to paying off a credit card debt.

6. Use increased earnings for higher credit card contributions

Have you earned a bit of overtime this week? Received a bonus or pay rise? Use any additional earnings to plough it back into your credit card debt and improve you debt situation faster.

7. Track your credit card debt repayment progress

Visual tools can go a long way towards helping you reach your goals faster and help you stay focused towards paying off those credit cards. Monitor your monthly progress on a chart and put it up on the bathroom mirror or on the refrigerator. This will help you stay focused and determined to pay off that credit card debt faster.

8. Consolidate your credit card debt

If you have lower interest rate credit options, use it to pay off your credit card debt. In most cases, credit card interest rates are significantly higher than other forms of consumer credit. Speak to a financial consultant at your bank and weigh out your options.

Bob had paid off more than half of his mortgage and decided to borrow a small amount from his bond to settle his credit card debt and close these accounts. Being a financial planner, Bob knew that consolidating his debt in this manner is not always advisable but his reduced income over the past few months meant that he was on the verge of defaulting on his credit card debt. This could seriously impact on his credit report.

Bob may have added to his mortgage loan but he can now just focus on one consolidated loan and contribute his regular monthly credit card repayments into his mortgage. More importantly, Bob cannot spend as freely without a credit card thereby preventing any unnecessary expenditure.

Keeping these simple facts in mind could not only help to vastly reduce your credit card debt but would also help you dramatically improve your credit report.