If you’re facing emotional and financial distress due to your huge credit card balances, opting for the credit card debt consolidation option might give you big relief from your financial hardship.
Consolidating your debts is quite an easy thing to understand. The main purpose of a debt consolidation method is to reduce your high-interest debts and ease up the monthly payments. In case of your credit card debts, you just have to borrow money from a lender and pay off the debts, or you can transfer the entire balance to another low-interest card. The new interest rate should be lower than your all credit card combined. You can also opt for professional help if required.
Why should you consolidate credit card debt?
Credit card debts have a huge interest rate compared to other loans and debts. If you have a good credit score, you may be able to qualify for a lower rate loan.
If you are seriously drowning in credit card bills and can’t negotiate with your creditor for a lower rate, opting for a credit card consolidation option will be a wise choice to get rid of annoying debts. By consolidating your debts, you can pay off your outstanding balances or delinquent debts, causing your score to improve.
So, if you want to get rid of your credit card debts and save a good amount from the interest, you should combine your credit cards into one single payment every month.
Things you must consider before opting for credit card consolidation
Before paying off credit card debts through the consolidation option, it’s important to consider these factors:
Analyze your financial situation and the current scenario
You should ask yourself a few questions before choosing the credit card consolidation option. They are:
- What is your total debt amount?
- How much can you afford to pay toward the credit cards per month?
- In the case of a balance transfer, until what time will the low-rate introductory period be valid?
Consider these factors and chalk out how much you can save on interest when you choose a particular method to consolidate your debts.
Check the impact on your credit score
Consolidating your credit cards may increase your credit score. Paying off your credit card will lower your credit utilization ratio and boost your score. You must also avoid closing old accounts after consolidation. This will increase the available combined credit limit.
Check out for hidden fees
With a 0% intro APR you might have to pay transfer fees from 2% to 5% of each balance transferred. But in most cases, you might save a lot in the long run.
After considering these factors, you must be confident to consolidate credit card debt.
So, now let’s find out the best ways to do so.
The best ways to perform credit card debt consolidation
Here are a few ways to pay off unsecured bills with the help of consolidation.
Transfer the balance through a balance transfer credit card
You can use a balance transfer method with an introductory 0% interest rate. You need to remember the time until the 0% offer is valid. The offer may be applied to the balance transfer as well as on purchases.
If you opt for a balance transfer card, you can transfer your high-interest credit card balance to a low-interest card and pay off the balance anytime during the promotional period, without paying any interest. It is a big saving, indeed.
Make sure you learn about the balance transfer fee; it may depend on the balance amount you transfer. Also, make sure the combined transferred balance shouldn’t be higher than the credit limit.
Opt for a personal loan
You can apply for a personal loan from credit unions and banks. It’ll be easier for you to get such a loan with low interest if you have a good credit score. Some lenders may provide you with lower interest rates on personal loans compared to your credit cards. The repayment tenure of personal loans is also longer than credit card debts. But before applying for the loan, ask your lender about hidden fees or charges, if any.
Take out a loan against your car or home
You may use cash-out refinance or HELOC to create funds for credit consolidation. You may contact your bank, credit union, or an online lender to take out a loan using your car or home as collateral.
The interest rate on credit cards is normally higher than the home loan and car loan interest rates. Mortgage interest is also tax-deductible up to a certain amount.
However, these options are quite risky in a broader sense. Practically, you are risking your home or car to pay off credit cards. That means you are paying off unsecured debts by taking out a secured loan.
If you can’t pay off the loan, you may lose your home or car, that’s for sure.
Remove funds from your retirement account
You can withdraw money from your employer-sponsored 401(k) or an IRA, and use those funds to pay off your credit card debts. This is one of the easiest ways to generate money for debt payments. This is because there’s no credit check required to withdraw your own money. You can withdraw up to 50% of your account balance.
Try to pay the money within 5 years, unless your retirement savings may get a hit. Make sure to avoid paying early withdrawal penalties if possible.
Borrow money from close ones
You can borrow money from your close friends or family members like parents, brother, sister, or grandparents and consolidate your credit card debts. This is the easiest way to arrange money for debt payments as there’s no credit check, and the interest rate will be lower than other conventional unsecured loans. If you get lucky, your lender (it may be your father or grandfather, or a friend) may lend you money at a 0% interest rate, which means no interest at all!
Get help from a credit counseling company
Get expert advice from a nonprofit credit counseling company. They may also help you create a repayment plan for consolidating your credit cards. You can contact a National Foundation for Credit Counseling (NFCC) accredited company if you’re serious about this option.
The credit counseling company will help you set up a repayment plan under a debt management program. Through this program, you can make a single monthly payment to the credit counseling company. The company will talk with your creditors and pay them on schedule. In this process, the credit counseling company will negotiate with the creditor to lower your interest rates so that it’s easier for you to repay debts. s.
The credit counseling company may charge a relatively lower fee to provide you with the services you need to manage your debts.
Now, these are some good ways to make your credit cards clean. Now it is up to you how you are going to use them. If you’re still getting confused, you can definitely consult a professional before making a move.