Category: Debt

When you are tackling multiple credit card bills every month, credit card consolidation may seem like water for a fish. But, it can be a bad option in certain circumstances. In this post, we will discuss them and find out when credit card consolidation is a bad option and how you can turn into a good one.  

 

When you should not consolidate credit cards

Credit card consolidation can be a bad option at certain times. Let us find out when and how.

When you do not know the reason behind your debt problems 

Credit card consolidation can help you to get out of debt. However, if you do not find out the reason why you got into debt problems, you can make the same mistakes and get into financial trouble yet again. 

If you keep on spending just like before, then consolidating credit cards can never be a good option for you. Not analyzing the reasons behind your debt problems is a fatal error. Unless you change the habits or work on the reasons that pushed you towards debt, you can never enjoy a peaceful financial life. 

Focus on the reason why you are in credit card debt. Is it because you were spending more than your affordability? In that case, you have to learn to live as per your means first. Otherwise, credit card consolidation can never help to solve your problems. 

When you qualify for a consolidation loan with a long repayment term 

Credit card consolidation loans are not free. Most consolidation loans come with interest rates, origination fees, and other charges. You have to pay interests and fees until the completion of the loan term.

The fees of credit card consolidation loans are usually lower than credit cards. So, that helps you to save money. Some loans even come with a very low-interest rate. But there is a catch. These loans have a long repayment term. When the loan term is too long, then even if you have to pay a low-interest rate, you will eventually pay more on interest payments in the long run. 

When there is no specific pay-off date

Obviously, you would not like to make payments on your debts for an indefinite period. Usually, credit card consolidation loans come with a specific pay-off date. However, loans that do not come with a pay-off date are too risky. You will keep on making payments forever, and your journey towards debt freedom will only become more difficult.

When you opt for a credit consolidation program, credit counselors give you an affordable payment plan. You have to pay a fixed amount every month to counselors. But they also give you the timeline by which you can get rid of debt.

Usually, in a credit consolidation program, you can expect to get out of debt within 3 to 5 years. So, you know when you will get out of debt, and you can plan your financial life accordingly.

When you cannot lead a frugal lifestyle

If you keep making useless expenses and pile up fresh credit card debt, you will get into financial problems again. While a credit card consolidation program helps to free up cash, it won’t work if you can’t lead a frugal lifestyle.

Unless you lead a frugal lifestyle, it is not possible to save money. And if you do not save money, you cannot make the required monthly payments or extra payments on your new repayment plan.

Piling up fresh credit card debt while making payments on a credit card consolidation plan will not help you enjoy a debt-free life. You will only exhaust your credit limit, increase your outstanding balance, and lower your credit score.

You want to borrow a consolidation loan without a good credit score

It makes sense to borrow a credit card debt consolidation loan when you can save thousands of dollars. If you are planning to borrow a loan or apply for a balance transfer card to consolidate credit card debt, you need to have a good credit score. 

How much credit score do you need? A credit score between 670 and 700 is considered a good one. However, if your credit score is below 670, then lenders may not be ready to offer you an unsecured loan at a low-interest rate. They will charge a high-interest rate on your consolidation loan, or they will offer a secured loan.

It is a loss for you in both cases. A high-interest consolidation loan will not help you to save money. Again, the interest on a secured consolidation loan is low, but you may lose the collateral in the event of loan default.

For example, a home equity loan is a type of credit card consolidation loan. But you will qualify for it only when you have equity in your home. If you do not have sufficient equity in your home, you will not be eligible for this type of loan. Furthermore, if you fail to pay off the home equity loan on time, lenders will foreclose your property. So, you will lose your home to pay off your credit card debts. Are you willing to take that risk? 

When you cannot pay off the balance transfer card within the promotional period

Balance transfer credit card allows you to consolidate credit cards at a 0% interest rate. It is a good way of consolidating multiple credit cards. However, if you do not have the money to pay off the balance within the introductory period, it is a bad option. 

After the introductory period is over, you have to pay double or triple the interest rate. There will be no savings.

 

When you do not research the credit card consolidation company

When you are under stress, it is easy to fall prey to fraudulent credit card consolidation companies and make a wrong decision. Fraudulent companies will take money from you without offering any solution. They will charge upfront fees and monthly fees without negotiating with your creditors. As a result, you will get into acute debt problems instead of getting rid of them.

How can it be turned into a good option? 

Credit card consolidation can help you to save money when used judiciously. Here are a few ways to do just that. 

Save money and make payments on time: Lead a frugal lifestyle to save money and make monthly payments to the credit card consolidation company. If possible, make extra payments to get rid of credit card debt fast.

Read the fine print: Be it a credit card consolidation program or a loan, read the fine print of the agreement. What if you fail to make monthly payments? Are there any hidden charges? It is better to have a clear picture before you commit to anybody.

Educate yourself: Educating yourself about the credit card consolidation process and the traits of a good company can help you to get the right solution. Download a credit card consolidation app and find out how the process works. Check out the reviews to know what customers have to say about it. You will get a good idea from there.

Choose the best program: Consolidation loans and balance transfer credit cards are good as long as you have a good credit score. When you owe money to credit card companies, chances are high that you already have a low credit score. 

When you have a low credit score, it is best to opt for a credit card consolidation program. You can qualify for it with a low credit score. Unlike balance transfer credit cards, you do not have to pay the balance within 12 to 18 months. You do not have to pay high-interest rates also.

Clear balance within the introductory period: If you are taking out a balance transfer credit card, pay off the outstanding balance within the promotional period to avoid paying high interest. 

 

When settlement is a better idea than consolidation

Credit card settlement is a better option than consolidation in the following scenarios: 

You want to lower your outstanding balance: Instead of reducing interest rates, if you wish to cut down your outstanding balance, then credit card debt settlement is a better option for you. In this credit card debt relief plan, you can negotiate with creditors to lower your payoff amount significantly.

You want to get rid of debt with a lump sum payment: In a credit card debt settlement plan, you can get rid of your financial obligations with a lump sum payment. The process is fast and quick. In a credit card consolidation program, you may have to wait between 3 and 5 years. 

Final words 

When you combine credit card debt with a consolidation plan and save more than $600, you have to pay tax to the IRS. So always keep this fact in mind before you consolidate or settle your debts. Do not think that credit card consolidation or credit card debt settlement is a bad option just because you have to pay tax. The fact is you have to pay tax whenever creditors forgive a portion of your debt. You cannot escape it.

Credit card balance transfer has become a quite common debt relief option among all the modest debtors in our country. People started to understand the efficacy of transferring debts from one account to another, long before credit cards came into fashion. Back then, personal loans and payday loans dominated the scene.

So, what people used to do was borrow money from Mr. A to pay off Mr. X, Y, and Z. And then, slowly pay off Mr. A, over time. The same thing is about credit card balance transfers.

Take out a new card and bring all the balances from your existing credit card to this new card. Once the transfer is successfully made, you will have only one card to pay off, and enjoy a median interest rate against all your credit cards.

But, it can be dangerous. A balance transfer is no joke, and banks encourage you to do so, as they see a big profit margin in them. You just might get entangled in this transfer chain forever, if you don’t know how to make it a ‘once and for all’ affair.

Here’s how you might never exit the balance transfer chain:

Banks and financial institutions promote balance transfers to gain money from you. It’s not that they totally want you to become debt-free. When you take out a balance transfer card to pay off your other cards, you are letting the new bank have a new income trail.

Most banks charge a balance transfer fee. And, generally, debtors opt for this method when they have too much debt to pay off. So, chances are, the majority of the debtors doing the transfer, won’t be able to pay off this new card either.

Even if you do manage to pay off this new card, it won’t be anytime soon, and not within the flashing 0% interest rate introductory period. This 0% APR introductory phase is a big-time marketing strategy, that the banks use to sell balance transfer cards. They know very well that people will get false hopes to pay off their due balances at a 0% interest rate.

Now, just imagine if you, by any chance, are unable to pay off this new card within the introductory period!! There are high probabilities that this card will be facing a brand new hiked up interest charge over a large outstanding balance! You may ask if you can again transfer this balance to a new card. But for how long, will you go on like this?

Plus, what guarantees are there that you won’t be using your old credit card again, within this transfer period?? Ultimately, you are getting trapped and might never just escape this whole jeopardy that the big financial institutions lay down for us. Even if you say that you will close your old credit card after you have transferred the balance, then you will also be making another grave mistake.

Closing your old credit account is not a good move for your credit health:

The moment you close your old credit card, the credit history that you have built up to date gets wiped away. At least something of that sort. And, once it gets cleared, you have to build your credit history all over again. Now, this takes time!

A washed away credit history will have a huge impact on your credit score. It’s not impossible to see some 200 points drop at times if all you were having to date are credit cards in your name. A diminished credit report and a burnt-out credit score is a serious condition. You won’t be qualifying for good loans or other credit cards so seamlessly!

A well-done balance transfer, however, still has the power to save you from debts. But for that, you need proper help and guidance! Consult a lawyer, or someone whom you can trust, who is in the finance industry.

Don’t get induced by the exciting balance transfer offers you see everywhere. I would still say it’s better to avoid balance transfers if possible, rather deal with your existing credit cards tactfully. At times, it’s far better to stick to what you’ve got, than losing yourself completely in the search of something that has no guarantee of becoming yours.

“There must be some kind of way outta here

Said the joker to the thief

There’s too much confusion

I can’t get no relief

Businessmen, they drink my wine

Plowman dig my earth

None were level on the mind

Nobody up at his word

Hey, hey”

……………………. All Along the Watchtower.

A pretty tough man, pretty tough! There ain’t no words to describe the blast, that happened in the decades of 60s and 70s. A new wave of culture that redefined the forms of Arts, Science, Philosophy, Music, and anything you name!

It was a movement! The mass upheaval of a chaotic situation that questioned rules, peace, war, and most notably, love!

But it was this Rock and Roll amongst all, that brought significant changes to how the world worked, such as musical and artistic acts like Elvis Presley, Bob Dylan, Allen Ginsberg, Jack Kerouac, The Doors, Lynyrd Skynyrd, Andy Warhol, The Velvet Underground, The Rolling Stones, Jimi Hendrix, Janis Joplin, The Beatles, and so and so, came into the picture.

The time was the high heat of the 1960s and 1970s. The World Wars are over. Big politicians and diplomats were busy fighting the unnecessary cold war! And, in the middle of nowhere, popped a mushroom. Large enough to shed everything that came it’s a way!

This mushroom took the shape of a different dimension of thoughts and actions. This was the rock lifestyle of the 60s and 70s. The hippie age. The age where music and drugs wiped the streets. The age where people loved to dance to the end of love. And an age, where the last thing the youths cared about was money.
It was an age of realization, spiritualism, psychedelics, opening the doors of perception, intelligence, and intellectualism!

But they lost track! As per the words of Karl Hyde’s song, Born Slippery, the hippies had chemicals grown so close to them, that they forgot the fact, that this world still finds solace in worldly and materialistic objects!

And, that’s exactly when the whole thing went wrong, economically. The effect of which we are still bearing, enormously. It is the current US debt. But, will it be ethical to blame the culture of the 60s and 70s solely for today’s American debt?

Let’s evaluate.

Understanding the Baby Boomers- the initiators of the hippie movement:

Am I missing out on anything? The Silent Generation or the Lost Generation or something like that? No, I guess not. For they have their share already. The lost generation got washed away by the start of World War II. This generation was followed by the Silent Generation. Both these generations witnessed the 2 great world wars, and both succumbed to the great depression of the roaring 20s.

Obviously, we can never erase scars, and the effects the world wars had on the economy is still reflected. Believe it or not, it’s more or less like the butterfly effect, where one event results in an effect, that triggers several other series of events.

These continuous events created by the age of depression, the world wars, and the start of the cold wars, led to an amalgamation of frustration among the youth of the late 50s and early 60s. They strive to cut loose the social chains of rules, regulation, controlled speech, and all! And, these young fellows were the baby boomers! They just wanted to break on through to the other side!

Most of the baby boomers’ parents were servicemen, soldiers, army men, law-abiders, and definitely were on the stricter side. As far as we have heard, the silent generation was busy building wealth and securing a systematic future! This generation wanted peace with the help of civilization, family ethics, and rules.

But their children, the baby boomers, felt suffocated as the Cold War was prevalent both in the country and in the house. This suffocation led to a big blow out! And, that’s what turned them into hippies! Hippie might sound like a mellow word, but this word really broke through that time I tell you.

Examples include Elvis Presley, Johnny Cash, Jim Morrison, Jimi Hendrix, Hunter. S. Thompson, Janis Joplin, The Grateful Dead, Bob Dylan, Lou Reed, and all!!

The England side included Pink Floyd, Led Zeppelin, The Black Sabbath, Marc Bolan, and this could just be endless if I keep on going, and if you keep on reading!

So, the point is, these kids wanted a great and good ol’ party time. They saw enough of suppression, and rock and roll just acted as a sedative and a stimulant at the same time. If not anything, at least this ‘music-and-culture’ spoke of freedom, spoke of love, and spoke of happy memories, that brought rain into the then dry world! Even if the rain was ‘acid’!

Understanding Generation X, the punk, and the economic breakdown that followed:

The rock and roll craze was about to collapse, as substance abuse, debt, relationship chaos, and a feeling of guilt started to cover the baby boomers. It was now time for their kids to question the past and answer for their mistakes. Many rock stars of that era suffered depression, isolation, ill financial health, and a collapsing burden of fame.

Club 27 took place, as many influential and promising figures started to fade away at very young ages! In the meantime, the Vietnam war ended and the soldiers returned home. There were memories of Woodstock, and the storm of the hippie wave was about to go silent.

It was time for the hippies’ kids to take charge of this world! These kids came out more charged up. More metal headed and punk souled than their ancestors. Loved to experiment with everything available.

They started to change the face of the rock lifestyle into something more intense and robust. Notable genres and artists that ruled the culture and lifestyle of this era include Punk, Glam, Pop, Techno, Shoegazing, The Sex Pistols, The Smiths, heavy metal, death metal, Indie, The Motley Crue, Aerosmith, Nirvana, and all!

“Now look at them yo-yo’s that’s the way you do it

You play the guitar on the MTV

That ain’t workin’ that’s the way you do it

Money for nothin’ and chicks for free

Now that ain’t workin’ that’s the way you do it

Lemme tell ya them guys ain’t dumb

Maybe get a blister on your little finger

Maybe you get a blister on your thumb

We got to install microwave ovens custom kitchen deliveries

We’ve got to move these refrigerators, we gotta move these color TV’s

See the little faggot with the earring and the make up

Yeah buddy that’s his own hair

That little faggot got his own jet airplane

That little faggot he’s a millionaire”

………………….. The Dire Straits, Money for Nothing.

The hedonistic mottos of this age, that preferred luxury, pleasure, happiness, ecstasy, and courtship gave economy, savings, wealth, and investments the least importance. This period had elongated nights that saw gangsta rap, discs, and pubs taking up most of the education!

The hippie movement continued but in a whole new different shape and size. And this was when Credit Cards started to rule the market. It increased the buying power of people with reckless money habits.

Then came the housing crisis:

The 1987 Tax Reform Act and the Taxpayer’s Relief Act of 1997, made housing seem the only profitable investment, as tax deductions for interest amounts on consumer debts were cleared out. With little knowledge gathered on finance and economics in these two generations, people started to take out subprime mortgages at a huge rate.

Due to havoc and wrecked-up lifestyles that only a few people were successful at, many went through unemployment! Even notable figures and bands like Johnny Cash, Bob Dylan, The Doors, and other contemporary celebrities went through severe times of bankruptcy, social and rehab issues.

If at one part, something was rising (what became the golden age of modern music, science, arts, and spiritualism), then, on the other hand, the whole mass was falling down! The world was losing its balance!

And, haphazard financial decisions just occupied the minds of young adults. An act of desperation, maybe! It’s the first decade of the 2000s and big financial institutions like Layman Brothers, for instance, went underwater.

Entering the current national debt scenario:

So, here we are today. As our past ancestors did little financial planning and wealth building, we have only learned to make amends with debts.

We rely on credit cards, loans, and secured debts, for making our financial grounds independent. Doing Savings has never quite been the prime priority of the American Dream or the San Francisco acid wave!

One domino that fell down in the 60s and 70s, has been continuously pushing the dominoes coming in line, one by one. Today the USA holds the majority of the global debt! Nearly $20 trillion of global government debt. Where do the psychedelic dreams are when the economy is concerned?

All seem to be a big misfit.

• We really don’t know what reasons are hiding in the central eye of this economic deficit we are facing. Is it the poverty of the world wars?
• Is it the total abandonment of money and commerce during the rock n’ roll era?
• Is it too much substance abuse, con, and gang activity that funneled the enormous national debt?
• Or is it the pointless blaming one generation does on the other?

The answers from the past do reflect the collapse of this economy. So many things are still left to be pointed out in this post!

But all I can say is, history repeats itself.

And it is up to us, Millennials and Generation Z, to fight for our country’s economy. We need to be the sensible game changers our forefathers fought for. Even though many failed to cope with the rush back then, still many were able to show us a bright future made of love and peace.

I believe if only we can just straighten up our personal finances a bit, then all problems are solved, and we will flourish as a supreme civilization!

Master the art of moderation and be debt-free my fellow current American generation!

“When I’m counting up my demons

Saw there was one for every day

With the good ones on my shoulder

I drove the other ones away

If you ever feel neglected

If you think all is lost

I’ll be counting up my demons yeah

Hoping everything’s not lost

When you thought that it was over

You could feel it all around

Everybody’s out to get you

Don’t you let it drag you down”

……………………………………….  Everything’s not lost, Coldplay.

Below is a table showing the rise of Gross Public Debt, from the fiscal year 1950, till the present 2018, at a 5 years gap:

Fiscal Year	Gross Public Debt
1950	$256.85 billion
1955	$274.37 billion
1960	$290.53 billion
1965	$322.32 billion
1970	$380.92 billion
1975	$541.93 billion
1980	$909.04 billion
1985	$1.8 trillion
1990	$3.2 trillion
1995	$4.9 trillion
2000	$5.6 trillion
2005	$7.9 trillion
2010	$13.5 trillion
2015	$18.12 trillion
2018	$21.46 trillion