Credit Card Debt Reduction Consolidation
5 Ways to Consolidate Credit Card Debt
Consolidating credit card debt is a way to consolidate multiple credit card balances into one monthly payment.
Consolidating your debt can be a smart option if the new loan’s annual percentage rate is lower than that of your credit cards. Consolidating your debt can help you save interest, reduce your monthly payments, and shorten the time it takes for your debt to be paid off.
The strategy that works best for your situation will depend on your credit score and how much debt you have.
These five methods are the best to get rid of credit card debt
- Refinance by using a credit card that allows you to transfer the debt.
- Personal loans can be used to consolidate debts.
- Make a profit from your equity in your home.
- It might be worth considering putting money into a 401(k).
- Begin a debt-management strategy.
Balance transfer credit card
- 0% initial APR term.
- Usually, a balance transfer fee will be charged.
- After the promotional period, the APR will rise.
Credit-card refinancing also goes by the name credit-card refinancing. You can transfer your credit card debts to a balance card. For most debt transfer cards, there is no interest during a promotional period, usually between 12 and 18 months.
An annual fee is not charged by a reputable balance transfer card. Some issuers might charge an annual fee for balance transfer cards.
Pay off your debt as soon as possible. All remaining amounts will be charged at the standard credit-card rate.
Credit card consolidation loans
- Fixed-rate guarantees that your monthly payments will not fluctuate.
- You can get low APRs for those with good credit.
- Some lenders may offer direct payment to creditors.
- Low rates are difficult for people with poor credit.
- Some loans may have an origination fee.
- Credit union membership is only available to members.
Consolidating credit cards and other debts can be done by taking out an unsecured personal loan.
Credit unions are not-for-profit lenders and may offer flexible terms and lower rates than online lenders. This is especially true for borrowers who have poor credit or fair credit (689 on FICO Scale). Federal credit unions cannot offer an APR greater than 18 percent.
For applicants with excellent credit, bank loans can offer attractive APRs. Existing bank clients may be eligible for lower rates and larger loan amounts.
It is easy to apply online for consolidation loans by credit card lenders. Pre-qualifying is a better way to get an estimate of your loan amount, interest rate, and length if you are officially accepted for credit card consolidation loans.
Look for lenders that specialize in debt consolidation.
Uncertain if a personal loan is right for your situation? Enter all your debts into our debt consolidation calculator to calculate your savings rate and the average lending interest.
Home equity loans or lines of credit
- Personal loans are typically more expensive than a home equity loan
- Not all applicants need excellent credit to be eligible.
- Due to the long payback period, payments are kept low.
- To qualify, you must have equity in your house. A home assessment is often required.
- You can lose your house if you default on your payments.
You might be eligible to borrow money out of your home equity to pay for credit cards or other obligations.
A home equity loan is a one-time payment at a fixed rate. A line of credit is similar to a credit card, but it has a variable interest rate.
HELOCs may require interest-only payments for the duration of the draw period. This payment is typically for the first ten years.
Your house is your security, so you could get a better deal than you would if you took out a personal loan.
A 401(k) loan
- Lower interest rates than an unsecured loan
- Credit score won’t be affected.
- It can deplete your retirement savings.
- If you are unable to repay the debt, you could face severe penalties and fines.
- If you lose your job or are unable to pay your loan on time, you may have to repay the loan immediately.
Borrowing money from an employer-sponsored retirement program (e.g., A 401(k)). This could make a big difference in your future.
After you have eliminated balance transfer cards and other loan types, it’s worth looking into.
The loan will not appear on your credit report and will not affect your credit score. You could face severe penalties if you default on your payments.
401(k) loans usually mature within five years unless you quit your job and resign. They are due on the next tax day in that instance.
Debt Management Plan
- Fixed monthly payments are one benefit of a debt management plan.
- You could get half of your interest rate.
- This will not affect your credit score.
- Repaying your debt may take up to five years
- Common startup and monthly fees
A debt management plan consolidates multiple loans into one monthly payment and charges less interest.
Debt management programs do not affect your credit score, unlike other credit card consolidation options. If your debt exceeds 40% of your income and you are unable or unwilling to repay it within five years, bankruptcy may be an option.
An agency that is not for profit may be able to help you develop a strategy to manage your credit.
Kimberly Chantal Parkes is a former contributor to Rixloans. Kimberly Chantal is a freelance copy editor and writer with a specialization in personal financial planning. After having graduated from Kansas State University with a bachelor's degree in journalism, she began her career in media wearing many hats for community newspapers within the Kansas City area: writer as well as copy editor, photographer and coffee runner among other things.