People & Lifestyle
6 Ways to Consolidate Credit Card Debt
If you’re feeling overwhelmed by your debt from various credit cards, it may be a good time for debt consolidation. The process helps you combine your debts on different accounts into one new loan. It also may help you save money.
With that said, the process of debt consolidation requires you to have a strategy. The approach you choose should help you get more manageable payments, lower interests, and a shorter payoff period. When choosing ways to consolidate your credit card debt, you must consider your credit score, history, and the amount of debt you have.
Here are six ways to consolidate credit card debt:
- Credit Card Balance Transfer
The best thing about a “transfer card” is its super-low introductory APR period. However, your rate may increase after the promotional period — usually 12 months. You also need good credit to qualify. You’ll typically need at least a 690 on the FICO scale. Before picking a card, check to ensure that you will be saving on interest rates over time. Plan to pay the card off within the introductory period.
- 401(k) Loan
Taking out a 401(k) loan may be a good idea. Even though doing so will subtract from your retirement fund, interest rates are a lot lower than those of unsecured loans. These loans do not impact your credit score, and, in most cases, are due in five years. However, they may be due in 60 days if you quit or lose your job. You could also face some taxes and fees for withdrawing money from the program before it matures.
- Debt Management Plan
Consider creating a debt management plan for credit card consolidation. Some benefits of this option include fixed monthly payments, and you may pay up to half the interest rate that you pay on your credit cards. However, repaying the debt may take up to five years.
Your debt management plan will roll your debts into one main monthly payment with a lower interest rate. It’s a great idea when you need help paying off your credit debt but don’t qualify for other options. It’s also perfect for debtors with a low credit score. However, you must have a stable stream of income and be able to repay your debt within five years.
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- Credit Card Consolidation Loan
You can consolidate your credit card debt using a personal loan from an online lender, bank, or credit union such as Southland Credit Union. Potential benefits include direct payments to lenders, low APRs, and fixed interest rates. Unfortunately, you are unlikely to get these loans if you have bad credit.
Most online lenders will let you pre-qualify for your loan with no impact on your credit score, which is why they rank among the top credit card consolidation loans on Bills.com and other similar sites. They may give you an estimate of your rates without much consideration of your credit. Credit unions and banks are a lot stricter. However, they typically offer more competitive APRs, especially if you have good credit. Existing bank customers may get even more benefits.
- Home Equity Loans/Line of Credit
Homeowners can consolidate their debt by taking out a line of credit or loan on the equity of their home. They can then use the funds to pay debts including credit card obligations. Interest rates are low since your house secures the loan. If you do not keep up your payments, however, you are likely to lose your home.
- Get the Help of Loved Ones
Consider seeking the help of your family and friends. Depending on the amount of debt you have, asking for help from loved ones may be more sensible than contacting financial institutions. If you choose this method, ensure that terms of repayment are clear. The best thing about this option is that you don’t need to meet any eligibility requirements.
In conclusion, there are many ways to consolidate credit card debt. The best option for you depends on your needs. If you can find an option that works for you, it will make your debt easier to manage. It may reduce your financial burden and make the payoff period shorter.
