Credit consolidation is mentioned many times by financial experts to the debtors looking for a suitable debt payment strategy. But many people ignore the immense potential it holds to take them out of a debt-ridden life. It is simple, convenient, and is only useful to those who want to repay their credit cards in full amount. Otherwise, the whole purpose of credit consolidation is lost.
Do you want to know more about credit card consolidation and the tips to apply while using it? Read further.
What is credit card consolidation?
In credit card consolidation, the various types of debts, be it loan payments or credit card bills, are rolled into one monthly payment. If a debtor has multiple loan accounts or credit card accounts, credit consolidation may be a good way to simplify or lower the payments.
If you are planning to take out a new loan, obtain a new credit card, or enroll in a debt management plan. Whichever option you choose will help you pay off multiple balances.
For credit card consolidation, you’ll be left with one monthly payment and along with that, a new loan, a new credit card, or enrollment in a consolidation program. Not only does it help you in saving dollars as you make a relatively low one-time payment, but it also simplifies the payment process.
3 Ways to consolidate credit card debt
- Use credit card balance transfer – A balance transfer is a process of transferring debts from one credit card to another. This process applies when the intention is to save on interest payments each month. Fees are inevitable, introductory rates expire after a certain time, and good credit standing may be required to qualify for a suitable balance transfer card.
- Take out a personal loan – You can obtain personal loans from banks and credit unions. Your credit score is an important factor that is taken into consideration by banks to determine the eligibility and the interest rate on your loan.
The advantage of using a personal loan is to replace your multiple credit card debts with a loan whose interest rate is usually lower than your existing credit card rates, and you will get several years to pay off the debt.
- Enroll in a consolidation program – If you can’t handle your finances on your own, it is always safer to seek the help of a professional. Thankfully, there are consolidation programs to take you out of this mess. Begin with a counseling session with a counselor whose job is to review your financial situation and based on that he/she will advise you to take action. It is one such program that will clarify all your financial queries and your job to pay back debt will become easier.
6 Tips for consolidating credit card debt
Now that you know how to consolidate your credit card debt into one payment, let’s discuss a few tips that can make your debt payment process easier. Here are the tips:
a. Plan a budget
Planning a budget is very crucial as it will direct you to consolidate credit card debt in an effective and precise manner. A realistic budget grants money for debt payments contributes to your savings accounts and saves money for emergency funds.
Be realistic about your budget planning and leave some space for fun. Save money on leisurely pursuits by adjusting your dollars in the expenses category.
b. Make sure you choose the right option
You may have been influenced by the experience of a family member or close friend based on which you decided to consolidate debt. It should be clearly understood that every financial situation is different and what worked for a friend and/or close relative may not work for you. Therefore, always look for the factors that add to your advantage.
For example, if your credit score isn’t good, then don’t go for a balance transfer or consolidation loans.
c. Consolidate and repay bills rather than borrowing more money
Borrowing on a continuous basis for financial relief can put you in a bad condition. The more credit we get, the more we tend to spend it, thereby making debt repayment harder to achieve. What the debtor does is to get into the bad habit of creating more debt, which finally becomes harder to repay. The only way out of this callous behavior is to end it. Also, talking to a credit counselor in a non-profit credit card agency can be of great help. The essential tip to keep in mind is to focus on paying bills rather than borrowing more money.
d. Use a 401(k) loan to pay back the debt
The advantage of using a 401(k) loan is that the loans are cheaper than credit cards, the interest rate usually equals the prime rate plus one percentage point. There’s no effect on your credit score and you also have to pay interest to your own account.
However, make sure you repay the amount within a definite time so that you can enjoy your retirement benefits completely.
e. Borrow money from a family member or close friend
Turning to a family member and friend for borrowing money can be of great support. There are no credit checks involved and you may be offered a loan at a lower interest rate. However, your personal relationship with the person will be at risk; so think wisely before borrowing money from a family member or close friend. Also, make sure you repay the amount within the time as per your mutual agreement.
f. Check your credit report and scores
An error found in any of your credit reports could prevent you from taking out a consolidation loan. A debtor can take advantage of the facility to pull a free annual credit report from any of the three major credit reporting agencies, namely TransUnion, Equifax, and Experian.
By doing so, you can dispute any errors, if required, and have a blemish-free credit report. Once you know the status of your credit, you’ll have most of the information on how to consolidate your credit card debt.
Credit card consolidation is an effective strategy to get you out of debt. It can make you more organized and can save you from high-interest rate debt payments. So, what are you waiting for? Consolidate your credit card debt into one payment and see the results.