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How to Consolidate Credit Card Debt the Right Way

If you're like most American consumers, you've seen the ads touting the benefits of consolidating your credit card debt with a balance transfer offer or a personal or home equity loan. Before the most recent economic recession, you couldn't open your mailbox without finding numerous offers per week to consolidate your credit card debt through 0% balance transfers and other plans. And while lending criteria has become much tighter since 2009, the offers are still available, even for those with blemished credit histories and large credit card balances.

And those offers are appealing. For consumers who carry a balance - some in excess of $10,000 - they're looking for quick ways to consolidate their credit card debt and pay off their bills.

If you're one of those consumers considering a loan to consolidate credit card debt, you should know there are other options to help you pay down your debt. It's especially important to look past the marketing offers to the fine print, as consolidating your credit card debt with a loan could mean a higher interest rate or longer repayment term - both of which may increase your total payments over the life of the loan or consolidation plan.

Pay Early & Pay Often

Rather than consolidating your credit card debt, the smartest move is to pay off your balance each month, never allowing yourself to get into debt in the first place. And the key is to pay more than your card's minimum payment prior to your monthly due date, potentially saving you thousands of dollars in interest over the years.

Today's average credit card interest rate is more than 14% for both new and existing cardholders. And while that number may not mean a lot to you, it means big business for the credit card industry, as it's their way of making money. If you want to find out how your credit card's interest rate and minimum monthly payments can affect your bottom line, use an online credit card debt calculator.

A credit card debt calculator will allow you to input your current balance, interest rate and monthly payment amount to see how long it will take you to pay off your balance. It's also a helpful tool to see how much increasing your monthly payment can save you over the long term.

The long-term effect of paying just the minimum on your credit cards is staggering. As an example, let's take a credit card balance of $5,000, with an interest rate of 14.48%.

  • If you make the minimum payment each month (the standard amount 3 percent or $25 per month - whichever is higher), it will take you 142 months to pay off your balance, and you'll pay $3,043 in interest charges, in addition to the $5,000 principal. That's almost 12 years and more than $8,000!

If you can, it makes a lot of sense to increase your monthly payment and pay more than the minimum every time.

  • At the same interest rate, you could save almost $2,300 in interest charges simply by increasing your monthly payment to $100, and it will take you just over three years to pay down your balance.

To calculate your payments and payoff date using your specific balance and interest rate, visit CareOne's credit card debt calculator.

Paying your credit cards on time, every time sounds simple, right? But for millions of Americans who are already behind on their payments, this advice comes too little, too late. However, before taking out a loan to consolidate credit card debt, there's another option that could save you money - a balance transfer.

Consolidating Credit Card Debt Through Balance Transfers

A credit card balance transfer may be a useful tool in conquering your credit card debt, especially if you can find a card with no transfer fees and an initial low interest rate. Many cards offer an introductory period of 0% interest, allowing you to pay down your balance without incurring a monthly finance charge.

With a balance transfer, you're usually able to combine all of your revolving debt - from both traditional credit cards to retail store cards - onto a new card. Visit one of the major credit bureau's websites (www.equifax.com, www.experian.com, www.transunion.com) to learn more about how opening a new credit card account may affect your credit, or Ask the CareOne Expert.

Again, be sure to read the fine print. While you can consolidate your credit card debt through a balance transfer, remember the credit card company's primary goal is to make money. If the card company is offering a 0% introductory interest rate, it's possible you'll be assessed other fees or that the interest rate will skyrocket once the trial period ends - which could put you even further into debt. Consumers who are most successful with consolidating their credit card debt through balance transfers determine how much they'll need to pay each month during the interest-free period in order to pay down as much of their balance as possible.

Learn More About Credit Card Debt Consolidation

Whichever route you choose to go, be sure to take a close look at your total financial picture - including current interest rates and what you can afford to pay each month - in order to determine how to pay down your credit card debt.

For more information on consolidating credit card debt and other debt management plans and services, visit the CareOne Help Center.

If you liked this you may also like:

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  • How to Negotiate Credit Card Debt

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  • Credit Card Consolidation

    Credit card consolidation may be an effective debt-relief option for many consumers. Read about options available to consolidate your credit card debt.

  • 10 Ways to Get out of Credit Card Debt

    When it’s so easy to whip out a credit card every time you want to buy something, it’s no wonder so many Americans are in debt. In fact, according to Creditcards.com, the average credit card debt per household with credit card debt is approximately $15,000. Add in high interest rates on owed balances of around 14%, and consumers often find themselves struggling just to make minimum monthly payments, let alone pay down any principal.

  • Proven Credit Card Debt Solutions to Suit Your Needs

    Consumers seeking credit card debt solutions have various options, from balance transfers and debt consolidation loans, to professional help from a debt relief company if the problem feels too overwhelming to overcome on their own.

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