credit cards: to consolidate or not? · benefits of credit card consolidation. may lower payments...
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United Way of Southeast LouisianaUnitedwaysela.org
United Way of Southeast LouisianaUnitedwaysela.org
Fifteen Minutes of FAME Credit Cards: To Consolidate or Not?
United Way of Southeast LouisianaUnitedwaysela.org
How We Stocked Amid the Pandemic
Source: CreditCards.com
United Way of Southeast LouisianaUnitedwaysela.org
What is Credit Card Consolidation?
Credit card consolidation is the act of borrowing enough to pay off the balances of multiple credit cards.
Credit Card #1
Credit Card #2
Credit Card #3
Balance $2350 $600 $1189
Interest Rate 27.99% 28.99% 21.99%Minimum Payment 66.00 25.00 35.00
Amount of time to payoff 70 36 54
Total Monthly Payment $126.00
Consolidation Loan
Balance $4139
Interest Rate 6.99%Minimum Payment 127.78
Loan Term 36
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Benefits of Credit Card Consolidation
May lower payments
May lower interest rate
May reduce duration of payoff
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Pros and Cons of a Consolidation
Pros Cons
Simplify payments May not be eligible due to debt load
Positive impact to credit Loan origination fees can be expensive
Improvement in credit utilization ratio High probability to reuse credit cards
United Way of Southeast LouisianaUnitedwaysela.org
Balance Transfers
A balance transfer allows you to move an outstanding balance from one credit card to
another, sometimes for a fee. The fee is usually a certain percentage of the amount
you transfer or a fixed amount, whichever is more.
Credit card companies often offer a promotional interest fixed to 0% or a relatively
lower rate to encourage the transfer. This rate is traditionally for a fixed amount of
time (i.e. 6 months or 18 months).
Source: CFPB.gov
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How a Balance Transfer Works
Credit Card #2Balance $2350
Interest Rate 0% for 18 months
Minimum Payment $25.00
Credit Limit $2400
Credit Card #1Balance $2350
Interest Rate 27.99%
Minimum Payment $66.00
Credit Limit $2400
United Way of Southeast LouisianaUnitedwaysela.org
Pros and Cons of Balance Transfers
Pros Cons
Lowers payments Credit scores may decrease as a result
Improves credit utilization ratio Credit scores may decrease if you close credit card
Savings in interest during lowered promotional interest period High probability to reuse credit cards
United Way of Southeast LouisianaUnitedwaysela.org
So, Which Method is Better?Consolidations and balance transfers often make
things more management, but do not totally
alleviate the burden of debt.
Two strategies that can address credit card debt
without out acquiring additional debt:
Snowball debt-reduction method
Avalanche debt-reduction method
$ Smaller
Debt
$$Medium Debt
$$$Larger Debt
Debt Snowball Starts Here
Debt Avalanche Starts Here
United Way of Southeast LouisianaUnitedwaysela.org
https://www.creditcards.com/credit-card-news/coronavirus-debt-stockpile-survey/
https://www.thebalance.com/5-ways-debt-consolidation-can-hurt-credit-4693582
https://www.consumerfinance.gov/coronavirus/managing-your-finances/
Resources
Financial Watch: Preparing Financially for Hurricane Season
Special Guest: Jamene Dahmer
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