When you have accumulated too much debt on your credit cards and find it difficult to make the monthly payments on time either because you don’t have the cash or simply fail to keep track of the due dates, it can quickly lead to the situation getting completely out of hand.
In case, you were thinking, it was only your own finances that were completely messed up, a report by the American Bankers Association states that 44% of credit card accounts are not paid in full each month. Also, not surprisingly, the average balance of those who don’t pay in full every month is higher than those who settle their accounts in full every month.
While financial discipline and lifestyle changes are the best ways of ensuring that you can live within your means in the long-term, drastic action such as consolidation of debts is perhaps the most effective method of ensuring that you don’t go under.
What Happens If You Miss Making Credit Card Payments
When you miss out on making a monthly payment or make the payment after the due date, a few things happen; you are charged a steep late payment fee, you could be levied a penal rate of interest, and your credit score takes a hit. If payments are repeatedly missed out on, your credit card account can be blocked and turned over to collection agents who can make your life miserable with their repeated calls and threats. Your credit score plunges and it can become very difficult for you to access further loans.
What Can You Do to Restore Your Credit Score?
Since no debt goes away simply because you ignore it, you will need to try to pay off your debt as soon as possible to prevent unnecessary accumulation of interest and late payment fees. Legal action can also be initiated against you for the recovery of the dues that may also lead to bankruptcy.
You can try and negotiate with the credit card companies to reduce the penal interest and late payment charges with the promise of immediate settlement by using your savings or by selling off an asset like a car or jewelry. You can also try and sweep all your dues to a new card that offers a balance transfer scheme at zero percent rate of interest but you need to ensure that you can pay off everything by the time the promotional offer ends, typically in 18-24 months’ time.
You can also consider taking on a debt consolidation loan with which, you can pay off all your credit card dues and focus thereafter only on repaying the single loan. The advantage of this method is that you can save substantially on the interest expense as typically, for people with good credit scores the rate of interest on a debt consolidation loan from a reputed lender like Nationaldebtrelief.com is far less than that charged by credit cards.
Also, by restructuring the loan period, you can make the monthly payments more affordable. Of course, you can accelerate the process by making substantial lifestyle changes that allow you to save more cash and repay the loan faster so as to make the total cost of the loan less. To do this, you should be able to make out a budget and save the maximum amount of money for plowing back into the loan repayment.
Advantages of Debt Consolidation
The most visible benefit of consolidation is that you no longer have multiple debts to monitor and make payments. You now have only one loan outstanding and you no longer have to juggle around trying to prioritize the card payments due to lack of available cash.
Another significant advantage is that you tend to save a lot on the interest as the rate of interest on a debt consolidation loan is far less than that of the credit cards, especially for people with good credit scores and regular employment. By consolidating your debts, you also get the opportunity of making the monthly payments more affordable; not only are you paying less interest but also can choose a longer repayment schedule that has the effect of lowering your monthly due.
Disadvantages of Debt Consolidation
Despite the many obvious advantages of debt consolidation, it is not quite the perfect solution as lenders would lead you to believe. If you are not disciplined, freeing up your credit cards may have you again splurging and racking up dues that you cannot repay. Ideally, you should use the surplus cash to accelerate the loan repayment but many people just cannot avoid the temptation of swiping their cards and find them in a mess far worse than before. Many lenders try to make the consolidation loans more attractive by projecting a more affordable monthly repayment figure. However, remember that repaying the loan over an extended period actually results in the loan becoming more expensive due to the extra interest cost.
A home equity line of credit may seem very attractive due to the low rate of interest but you could be putting your home at risk if you fail to make regular repayments due to any reason. Debt settlement is always projected by the settlement companies as being very attractive as you can reduce your debt, however, what may not be immediately apparent is that your credit score will be hugely impacted in the process as you will be advised not to make payments to the card companies so that more pressure can be exerted to make negotiations easier.
If you have racked up a lot of debt that you cannot pay back on schedule, you should immediately take stock of the situation and figure out how much you owe. Make drastic lifestyle changes to reduce your expenses and see how much you can afford to repay every month. If the situation is still out of control, take out a debt consolidation loan from a reputed lender and make the repayment in the shortest possible time. Ensure that you do not fall back on your extravagant lifestyle and continue to use your credit cards with the utmost discretion.