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Consolidating Credit Cards

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Jerome Said:

I'm thinking about consolidating my credit cards. How will this affect my credit and for how long?

We Answered:

Debt consolidation can mean several different things:

STAY AWAY from "debt consolidation" company that promises to cut your debt in half through debt settlement....This is a risky tactic of deliberately ceasing all payments to creditors and forcing your accounts into default to attempt settlements. You pay a monthly fee to a debt consolidator....this entire fee goes towards building a settlement account and to the consolidator's fees to settle your accounts in the future. Your credit card companies will deliberately not be paid so that all the accounts will default/charge-off so that they can attempt settlements at around 50%. If you are current on your accounts, this process will ruin your credit rating for sure. Debt settlement is like a roll off the dice with your finances...You can never predict how your creditors will respond to the deliberate defaulting of your accounts...they might settle at 50%...or they might serve you a summons, take you to court...and if they win, you could be looking at wage garnishment.

None of these debt consolidation firms have the power to force your creditors to accept settlements. Your creditors have the right to refuse these terms and take you to court.

A better option is entering a Debt Management Plan (DMP) with a non-profit credit counselor like CCCS (Consumer Credit Counseling Services). Contact your local Red Cross for a referral. They can negotiate lower payments and interest rates. They do not negotiate settlements.

They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to "enrolled in debt management." This does not damage your credit, but it may make it impossible to obtain new credit while you are enrolled in their program....so don't use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would probably be denied while you're enrolled in the CCCS debt management program.... Otherwise, it can be a very good way to deal with your debt. Only do this if your cards have not bee charged-off as bad debt.

Rodney Said:

Does consolidating credit cards look bad on your credit report?

We Answered:

What type of consolidation are you talking about? Transfering all of the balances to one credit card to consolidate or a consolidation company? Consolidation company is a great way to pay off your debts and save money, but it does hurt your credit rating. I had this problem several years ago. What I did was I got a bank loan for the exact amount that I owed at a pretty decent APR. I paid off all the cards and only worried about the one payment towards the bank loan. If you are unable to get a bank loan contact the credit card company with the lowest APR and ask for a credit increase to do a balance transfer (let them know the amount.) Credit card companies are so greedy and if you are in good standing with them they will happily oblige. If the credit card company with the lowest APR doesn't oblige there are credit card companies (like Discover) where you apply for a card specifically to do balance transfers starting at 0% APR for the first 6 months or year. Definitely look into these too as a last resort.

Eddie Said:

Will consolidating credit cards to a lower balance card impact my credit score?

We Answered:

Do not close the card cause it lower you available credit line. You also can use this service to pre-estimate future scores for different scenarios of credit card payments. - freecreditreport.sinfree.net

Megan Said:

With a bankrupcy case does it usually end up in just a consolidating of credit cards with 1 payment?

We Answered:

Let me give you a tip....when you see Yahoo answers that say bankruptcy is only on your credit report for 7 years, they are wrong (it's 10) and that is a good tip the rest of their information is incorrect also.

That said.....

As mentioned there are two types of bankruptcy. Chapter 7 will wipe out all of your unsecured credit card debt, but in order to qualify you must first meet a "means" test. They will take your income and expenses, crunch the numbers together and see if you make enough money to pay off a portion of the debt. If you do not have enough "disposable" income to pay at least $100 a month, you will be forced to file for Chapter 13.

Under the Chapter 13 plan, all of your creditors submit their claim to a trustee. The trustee will take whatever you have in "disposable" income, and divide it up between the creditors. Once you have filed, no more interest or late fees is charged.

So, in a very broad sense, you are "consolidating" your debt into one payment, and it will pay off your debts within 3-5 years. In most cases you are not paying back all of your debts. The last person I worked with had about $50k in debts ($10k in delinquent taxes)....and by the end of his "plan" he will repay only $28k of it. So again, don't believe the people who say you pay back your debts anyway....only a small portion.

Now the bad part.....bankruptcy is reported on your credit reports for 10 years. IF you do not plan correctly, you will have a difficult time over this period. Even with good planning, the next 2-3 years will be difficult, as nobody is going to give you credit.

And under a Chapter 13 plan, you will not get very much money to live in. This is not a "quick and easy" way to get out of credit card debt. You will be forced to live on a strict budget with no frills at all. That is the price you pay to get a large chunk of debts erased and creditors off your back.

But in most cases you don't have a lot of options.

My suggestion is to first contact a non-profit debt COUNSELING agency and get some practical advice. Sometimes if you get some 3rd party help you can put your finances back in order without having to resort to the scam artists that do credit consolidating, debt settlement, or bankruptcy lawyers. All are expense and all will hurt your credit worse then it is now.

Hector Said:

I try to make payments to every credit card monthly. Will consolidating my credit cards affect my credit scor

We Answered:

Yes, it will hurt your score. Sometimes I even believe going bankrupt is better than credit consolidation. Credit consolidation does show up on your credit report, and yes it is considered a negative, if you are paying off the balances each month, then keep doing it, maybe even consider transferring 1 card balance to another. Just my opinion.

Sidney Said:

Consolidating Credit Cards/Getting Rid of Debt?

We Answered:

Sigma's answer is excellent, you should definitely vote for it. Speaking of Dave Ramsey and his "Total Money Makeover" book, there is actually an episode of his TV program where he covers the 7 key points of the book (which he refers to as the "Baby Steps"). The episode is available online for free, just click on the following link:

http://www.hulu.com/watch/48522/the-dave

Good Luck!!!

Stanley Said:

Do you think consolidating credit cards actually get you ahead into making better payments to clear cards?

We Answered:

It helps in a way where you just make one payment for all your cards. I've done it once and it did help. You don't have to worry about due dates and minimum payments on each. Just make one large payment on one and that's it. Your Ad Here

Discuss It!

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