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I've done a little research but I would like to have actual feed back from people. I am currently behind on credit card payments and I am not sure exactly what to do. The interest rate is high and I do not seem to be making a dent. I can completely pay it off but there is a second card in the background that haunts me. Not to mention college payment is due as well. I have missed a few months payment on my second card and credit card companies have called multiple times.

I have been thinking about trying to consolidate credit however I'm not sure of the first step. I also just received a letter in the mail saying the credit card company is willing to settle the debt. Unfortunately I am not experienced in financial situations and I need help.

My questions are:

  • What are the consequences of Credit Card Settlement?
  • What are the consequences of Consolidation of Credit?
  • How do I go about accomplishing the above?

I hope this will help others out as well as myself. Thank you for your time and help.

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What country are you in? Maybe you should include this as a tag. –  Victor Aug 18 '12 at 8:17
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2 Answers

The first thing you should do is set aside some money for an emergency. This will help keep you from reaching back to your credit card as you work your way out of debt. It doesn't have to be a lot, $1,000 is likely plenty for now. Once you have that, if you have the means to pay off the first credit card, then do it.

Regarding accepting a credit card company's offer to settle, it will negatively affect your credit rating. There's no way around that. But, considering the fact that they made this offer, you likely aren't in a position to establish new lines of credit anyway, so there may be value in settling to have this off of your plate.

You can get out of debt. It takes discipline, which is not always easy, but this goal is totally worth it!

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Hi Lenwood, welcome to Money.SE. Can you address the question of credit consolidation? –  C. Ross Aug 29 '12 at 11:11
    
I'm not a pro, just someone that got fed up with debt and worked my way out. Consolidation loans strike me as a sour deal because they increase the amount to be paid back. There are only 3 ways to lower monthly payments, reduce the principle, lower the interest rate or increase the term of the loan. Consolidation loans lower monthly payments by extending the life of the loan, so the amount that you have to pay back goes up. Its better to bite the bullet and begin attacking the principle. The debt snowball is a better approach IHMO. –  Lenwood Aug 29 '12 at 11:45
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I'm a fan of that too, but that's not the question. Your point about consolidations loans increasing the total would be worth mentioning in your answer. –  C. Ross Aug 29 '12 at 15:18
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Another option is to use 0% offers to reduce the amount of interest paid. Here is how it works:

  1. Pay the minimum on all but one card.
  2. Pay off one card as quickly as possible (generally starting with the lowest balance).
  3. When it is paid off, do nothing with it, and wait for the credit card provider to send you a "0% transfer offer".
  4. When you get the 0% offer, transfer balance from the high-balance cards to the zero-percent one. The amount should be small enough so that you can pay it off in within the zero-percent period while still paying the other cards.
  5. Continue until you have paid off the other cards.

If you do this, you must be disciplined to a) not charge anything on the card after you have paid it off and b) pay off the transferred balance during the 0% period.

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Keep in mind that Balance Transfers often incur a fee. Typically between 2% and 5% of the balance being transferred. –  Mark Nov 6 '12 at 2:03
    
Could you give some idea as to how long it might take to get a "0% balance transfer offer" once a credit card has been fully paid off and has a zero balance? –  Dilip Sarwate Nov 28 '12 at 19:03
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