7 Ways To Consolidate Credit Card Debt


7 Ways To Consolidate Credit Card Debt :

Credit cards are a great option to earn rewards such as cash back or miles to travel. They are a reliable source of cash and assist in laying the foundation for credit construction to prepare for future purchases, such as cars or homes.

However, sometimes life happens and before you know it, you’re juggling numerous credit cards with different balances. Making a plan and executing a strategy to settle these debts may be difficult but it’s possible.

With a variety of ways to consolidate and pay off the debts, the ideal approach may differ from individual to individual. In this article, we look at typical and unusual strategies you can go about consolidating debt.

What is Consolidation of Credit Cards?

Credit consolidation of cards is a method where multiple balances on credit cards are combined in one. This makes it simpler to keep track of since there is only one monthly installment with a due date worry with. These strategies are often bundled with a lower rate of interest which will reduce the all interest paid, which allows you to reduce the amount faster.

What is a credit card debt consolidation loan?

The credit card consolidation loan happen when a loan is borrowed to settle your current obligations. Let’s take a simple example: that you own three credit card accounts with outstanding balances of $1000 each. A consolidation loan would mean getting a loan of $3000, and then repaying the three credit cards, and then getting a single loan of $3,000.

How does Credit Card Consolidation Function?

The process of consolidating credit card debt is usually simple. In conjunction with a loan representative or credit counselor, or even alone, will gather the debts you would like to consolidate into one payment. After that, a strategy or loan is put in place to pay your monthly installments in one location, which makes easy to keep track of the due date and hopefully, having a the ability to pay a lower interest rate in total.

With this in mind let’s look at some consolidation strategies that could be available to you. It’s not an exhaustive list, however, it might provide some concepts you haven’t considered previously.

Ways to Consolidating Credit Card Debt

1. Personal Credit

A well-known methods of consolidating your credit card debt is to contact your local credit union or bank and ask for the consolidating loan. The application process is usually able to be done via phone or online. The best part regarding these loan options is the fact that they typically have flexible time frames (typically between 12 and 60 years) and provide a regular month-to-month due date that aids in budgeting. In addition, certain financial institutions can make direct payments to lenders, thus avoiding any headache.

Be aware that the interest rate is most likely to be dependent on the length of the loan as well as the credit rating of your score. Also, loans may come with origination costs which can increase the overall amount of loan.

The four most commonly used indicators used for lending are credit score and total assets as well as total debts. Certain underwriters, such as the Upstart, an online lending company Upstart include some non-traditional measures in the loan process. In the process of underwriting the use of metrics such as education degree, length of time at your current address, and even work experience can lead to approvals that banks might not be able to provide. This is particularly useful for borrowers with a newer credit history who do not have a solid credit profile.

There are some drawbacks that could be a problem, for instance the potential of origination costs and less loans with terms that you can choose from. The rates are comparable for people with a high credit score, however they can be higher if your credit score isn’t favorable.

2. Debt Consolidation Programs

Debt consolidation programs are typically an option for those who are borrowers, which allows your credit cards to be integrated into one payment. Then, you typically make one installment to the company that will then forward the amount to creditors. Don’t think of this as the debt consolidation loan which is a loan to pay off your debts. Your debts from before are present, but they may be easier to manage.

The ideal scenario is that your monthly payments are lower each month than paying each of your payments separately. It also means that more of your money goes to paying off your debts. Debt consolidation programs collaborate with your creditors in order to lower the interest rate on debts, and also eliminate different charges like late fees, although they do not guarantee. Certain programs for debt consolidation may require closing certain or all the cards you consolidate make sure you verify if the goal is to maintain your credit card.

If you’re seeking help to overcome debt-related challenges that impact your credit score, non-profit credit counseling agencies, such as The National Foundation for Credit Counseling (NFCC) are able to examine your credit report and score it for you at no cost and discuss the results together with you. Remember that although each of these programs’ primary aim is to develop a plan of payment that works with you personally, some have different set-up and monthly charges. It is important to consider this when making the choice of which firm you select.

3. 0% APR Credit Card Offers On Credit Cards

A lot of credit cards offer the introduction offer of 0 APR of 1% on transfers to balances for a certain period of time following the opening of the account. However, they may still be subject to fees for balance transfers (typically between 3% and 5percent of the balance that is consolidated) They typically offer zero-interest introductory terms between 12 and 18 months, so that you don’t have to be concerned about any additional interest.

For instance, the Citi(r) Diamond Preferred(r) Card is an example. It is a good choice for those who are considering this option. It has a zero annual cost and a reasonable zero-introductory APR of 21 month on balance transfers starting from the date of your first transfer, and 0% intro APR of 12 months for purchases beginning from the when the account is opened. After that, the variable rate will range from 13.74 percent or 23.74 percent, depending the creditworthiness of your account. Balance transfers must be made within four months of opening your account. There is a fee to transfer balances of 5 dollars or 5% of the value of each transfer, which is more.

The drawbacks of balance transfer credit cards is the limit of credit given, as well as being restricted to the initial period prior to when the interest begins accruing. Some people find that spreading the balance over a longer period of time might be better even if it means paying an amount of interest. It is recommended to have good or excellent credit in case you’re thinking of applying for an account with the introductory period at 0.

4. Second Mortgage, or HELOC

If your home has increased by a significant amount over the years, or the amount of debt has been paid off in a reasonable amount, then making use of your home is an effective way in which you can consolidate debts. By taking out a second mortgage or utilizing the Home Equity Line of Credit (HELOC) is effectively making use of the home you own as collateral to pay off loans.

Since there’s an underlying source of capital for such loans, their interest will often be lower than you’d get with personal loans, which makes or reducing the monthly payment or getting rid of higher interest rates using other options. A lower interest rate could allow you to pay down the debt quicker. There may be additional mortgage-related costs when you go this route, therefore an immediate inquiry at your bank is essential. There could be tax consequences too.

5. 401(k) Loan

We generally do not advise using retirement savings unless it is in the most dire circumstances. In general you should avoid the 401(k) credit should not be your first option for debt consolidation. That is said, it can provide several advantages.

The option of borrowing against the employers’ 401(k) could be an effective method to get a lower interest cost than a personal loan in general, and this approach can improve your credit score in general. The loan you take out from your personal 401(k) isn’t subject to any credit checks, which means it shouldn’t negatively impact your credit score or demand the credit score to be at a certain degree. In addition, the debts you pay off through the loan could help boost your credit score as time passes.

It is important to understand that using you 401(k) reduces your retirement account and significant fees could be assessed in the event that you are unable to repay the loan. The repayment time could also be increased if you were to lose or switch jobs.

6. Peer-to-Peer Lending

Peer-to-peer loan is another method to get money to consolidate loans. Perform is a marketplace lending platform, connects the people seeking loans and investors who are willing to invest. The goal is to create an “win-win” scenario. The borrowing is to consolidate debt into one simple monthly payment, and an investor looking for a steady and lucrative return on investments.

7. Equity in Vehicles Owned by Owners

If you own a car which is in good condition or has a small amount of balance compared to what it’s worth, this might be a fascinating route to explore. A loan with your vehicle as collateral could enable you to pay the other creditors. In this case you can be able to get an auto loan rate that is generally lower than a personal loan.

The negative here would be the loan not being capped at the amount of the vehicle. In addition, when you take out an auto loan the majority of lenders will require full auto insurance coverage for the car, which may make the monthly cost more expensive in the event that you typically carry the PLPD. This is another method of leveraging an asset for lower rates for loans.

Is Credit Card Debt Consolidation a Best Idea?

The purpose of debt consolidation typically is to consolidate your credit card debts with high interest into one payment at lower interest. If anything it can provide an easy path to becoming debt-free, as the terms typically have a predetermined pay-down time. This more formal look could be just what you want to get on the path towards debt-free living, even if there are initial or origination charges.

Is Credit Card Debt Consolidation Loans Better Than Credit Card Refinancing?

Credit card refinancing refers to the transfer of the balance on the credit card to an interest-free credit card. In terms of refinancing credit cards is a different way to describe balance transfers. There are some points to keep in mind when you are weighing one option over another.

Refinancing credit cards is most effective when you’re facing smaller balances overall. This is due to the fact that refinancing is when you typically receive a promotion lower APR for a short period of duration (usually 12-18 months). After that the APR could be the same as what you paid before refinancing. The good thing is that you’ll only be accountable for the minimum monthly payment each month, which will probably be lower than an unsecured loan. You should make an effort to pay off the balance in your promotional time, which makes this a better short-term option.

A consolidation loan comes with a fixed interest rate with a consistent monthly installment and a specific time frame for repayment. There may be an origination charge however, the guesswork is eliminated because everything is decided when the loan is taken. The rate is likely to be greater than a promotional rate offered by the credit card, but in the event that the balance is extended beyond the period the rate of consolidation is likely to be lower than the average APR of that credit card.

Bottom Line

Credit cards and the associated reward programs are great for earning money and saving for your next vacation or even putting a bit extra cash back into your wallet. But, getting over the top of financial debt from credit cards could be a struggle and can quickly reduce the value of all the points or cash back that you’ve earned. Finding ways to pay off the debt fast can be a great way to achieving financial freedom, and also get you back to using credit cards in a way that is effective.

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