Do It Yourself Credit Card Debt Consolidation

It is no secret, tons of consumers are dealing with credit card debt. Recent financial recession has caused hundreds of thousands of us to overuse our credit cards. Now, things are getting a bit better and it's time to start cleaning up the mess. Now that we are starting to get back on our feet financially, many people are considering credit card debt consolidation to regain financial stability. Unfortunately, hiring a company to do this for you could cost you thousands of dollars in the long run! What if I told you that you could do it all yourself, for free? Well, you can! But, credit card debt consolidation is not for everyone. If you are experiencing a financial hardship, I strongly suggest reading a guest post I wrote for Top Finance Blog, “Understanding And Applying For Credit Card Hardship Programs”. If not, here's a step by step guide to a great DIY debt solution!

Step #1: Get Prepared – Preparation is key when it comes to anything you do in life. This is no more true than when you are working on your credit card debts. Before you can pay off your debts effectively, you will need to get a thorough understanding of your debts. To do so, make a list of all of your credit cards that currently have a balance. Your list should be in order from highest interest rate to lowest and include the lender name, account number, customer service phone number, interest rate and balance for each of your credit cards.

Step #2: Give Your Lenders A Chance To Keep Your Business – Although, the overwhelming idea of lenders is that they are these big bad corporations that aren't willing to do a thing to keep our business, this really isn't the case. In all reality, big lenders rely on their faithful clients just like mom and pop shops! Therefore, if you have been the model customer to your lenders they may be willing to reduce your interest rates to keep your business. To find out, simply call each lender from highest interest rate to lowest. When they ask how they can help you, say something like, “I was going through my credit cards today and noticed that this account has the highest interest rate. I love working with you guys but, I can't see myself paying such a high interest rate anymore. Is there anything you can do to make the balance transfer credit cards I'm considering less appealing?”. If you've made your payments on time for the past 12 months, chances are, 50% or more of your lenders will be willing to reduce your interest rates!

Step #3: Transfer Balances To Competitive Cards If Your Lenders Don't Deal – Balance transfer credit cards allow you to reduce your interest rates by transferring outstanding debts to new, low interest rate accounts. In most cases, these cards come with 0% promotional interest rates and incredibly competitive long term rates. However, it's important that you compare these cards properly as well. During your comparison, you should take a look at all interest rates including promotional, standard cash advance and default rates. Also, pay attention to other fees like annual and balance transfer fees. Finally, take a look at the lender of the card and ask yourself, “Do I know and trust this lender?”. If not, do a little research to make sure you transfer your balance to a worthy lender.

Step #4: Create A Constant Payment Plan – Minimum payments are designed to decrease as you pay your debts off. Therefore, even if you can only afford to pay your minimum payment this month, next month you will be able to send something extra to your principle balance. This is what the constant payment method is based on. To create your plan, simply add up all your minimum payments. Now, ask yourself, “Can I afford to pay more?”. If so, come to a number that you will pay this month. Finally, commit to sending no less than that each and every month until your debts are paid off completely.

Step #5: Stack Your Debts – By now, your credit card list has probably changed. So, it's time to make a new one with the new, lower interest rates that you should have by this point. This time, add in the monthly minimum payment for each of your credit cards. Anything extra that you can afford to send to your credit cards should go to the card at the top of the list. Now, you send minimum payments to your lower interest rate cards while sending every extra penny to pay the highest rate! Once your highest interest rate credit card is paid off, continue your constant payment and send all extra funds to your next highest rate. This process will accelerate your pay off process and can save you thousands of dollars during the life of your debts.

The Conclusion

The bottom line is, there is no reason that you should have to pay a company $1,000.00 or $2,000.00 to do this for you. You can do it on your own for free. However, it is important to remember that credit card debt consolidation is not the best option for everyone. Before choosing this option, I would strongly suggest sitting down with your local banker to discuss your options.

This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance and avid personal finance blogger. It was inspired by Joshua's most recent series, “Balance Transfer Credit Cards – A 7 Step Guide To Understanding This Option”. Join the discussion about this article, Joshua's series or any personal finance topic of your choice on Google+!

Image thanks to American Express.