According to The Balance, as of June of 2019, American debt had surged past its Great Recession level to over $1 trillion. The average credit card debt per U.S. household is $8,398.
According to The Balance, many people have amassed a large amount of debt because of high health care and gasoline prices. Also, people are forced to rely on credit cards to pay for unexpected expenses when they are laboring under gig economy jobs that fail to even pay minimum wage.
Wink Capital, a firm that specializes in helping consumers who are struggling under heavy debt loads, is often asked by customers how debt consolidation companies can help them pay off thousands of dollars in credit card debt.
Credit Card Rates Are Too High
According to CNBC, the current average credit card interest rate is 17.61 percent. At such a high-interest rate, it is not possible for most consumers to do more than service the interest rate every month.
In fact, CNBC found that almost a quarter of all people who carry debt expect that they will die a debtor. These types of interest rates are excessive and have kept many consumers from experiencing any financial recovery from the last recession.
One Key is to Lower Your Interest Rates and Payments
If you can significantly lower the interest rate you are paying, you will be able to make a greater payment on the principal each month.
How a Debt Consolidation Loan Can Help
A debt consolidation loan combines all of your high-interest, credit card debt into one personal loan with a lower interest rate and one payment each month. Your credit cards are paid in full with the loan proceeds. Then, rather than having payments that mostly pay the interest each month, you will be paying a greater portion of the principal each time.
Your debt consolidation loan will have a pay-off date, unlike your credit cards, which you may never have been able to pay off. The term of the debt consolidation loan is usually a few to several years. At the end of the loan term, if you have successfully made all of the payments, you will be free of the former credit card debt.
Additional Guidelines
During the pay-down period for your debt consolidation loan, you will need to be very careful and disciplined so that you don’t fall into the trap of amassing more debt. For this reason, there are a few guidelines you need to follow during the repayment period of your debt consolidation loan in order to make a full financial recovery.
Create a Budget
In order for debt consolidation to be successful, you will need to make a budget and carefully stick to it. A key is to make the payments on your debt consolidation loan as well as saving up money for a rainy-day fund. You need to create a space in your budget where you are putting money aside for annual expenses, auto repairs, and maintenance and other expenses that do not occur monthly. This should be easier to do because the debt consolidation loan will likely be a lower monthly payment than you were making to the credit card issuer.
The idea during the repayment period is to get on a strong fiscal keel and to stay there.
Reduce Expenses
Likely, when you look at your budget, you will find expenses that you can do without for a while, maybe forever. Some people think they can’t survive without their daily Starbucks, cable television or other subscription services. The truth is that their budget cannot likely survive these expenses. These daily and monthly expenses eat a hole in your monthly budget.
Whatever expenses you can eliminate will make it easier to begin to set money aside for the larger expenses that are not anticipated.
Put the Credit Cards Away
During this repayment period, you need to leave your credit cards at home in a drawer. Don’t use them unless you can pay the balance in full at the end of the month. Otherwise, you will risk getting deeper into debt.
Approached with care, a debt consolidation loan can help someone awash in high-interest credit card debt emerge into fiscal stability. Call us at Wink Capital with any questions you have about debt consolidation loans