How To Consolidate Your Credit Card Debt

How To Consolidate Your Credit Card Debt – A financial technology company, not a bank. Bancorp Bank, Inc. or Stride Bank, N.A. Credit and debit card services provided by banks

The loan happens gradually. Maybe you can open a credit card or two and take out a personal loan. Pay off student loans and car payments. Before you know it, you have more debt obligations than you can handle.

How To Consolidate Your Credit Card Debt

When you consolidate your debt, you consolidate multiple debts into one payment. With a new loan or credit card, you can have a higher credit limit and pay off all your current debts.

How Does A Debt Consolidation Loan Work?

Debt consolidation can be an effective strategy for simplifying the debt repayment process. Instead of remembering when to pay off multiple loans with different repayment terms and interest rates, you can focus on a single payment. You pay a single fixed or variable interest rate, depending on how your loan is consolidated.

The goal is to secure a new loan or credit card with a lower interest rate than what you are currently paying, reducing your monthly debt payment.

When it comes to getting a consolidation loan, you will find that different lenders have different eligibility criteria. However, some important factors that lenders consider are:

As long as you don’t consolidate your debt, debt consolidation is a smart strategy to pay off your debt faster and help you move forward financially.

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There are several ways to consolidate loans. Each method has advantages and disadvantages. Before committing to any debt consolidation plan, make sure you understand how it works.

Best of all, a good credit score (690 or higher) can pay off the loan in full before the interest rate kicks in.

Balance transfer allows you to transfer your credit card balance from one credit card to another. Ideally, you would transfer the balance to a card with 0% annual interest (APR).

Balance transfer credit cards can be a useful way to consolidate debt if your credit score qualifies for the best transfer promotions. Most offer 0% APR for 12 to 20 months. The best case scenario is to pay off the loan in full during the 0% APR period to avoid paying interest.

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Compare balance transfer credit card promotions, check your credit score, and see which cards qualify. Next, review the promotion terms to find out what the APR is and how long you can enjoy the interest-free period. Before opening a balance transfer credit card, consider the following:

Asking yourself these questions will help you avoid paying more by opening a balance transfer credit card. If you believe you will be able to pay off your balance in full during the promotional period, a balance transfer may be right for you.

Debt consolidation loans are used to pay off student, medical, and credit card debt. If you get a better interest rate on your current payments, you can reduce your debt by paying less interest.

If you pay 20% interest on your current loan but are approved for a debt consolidation loan with a 15% APR, you’ll save more money in the long run.

How To Consolidate Credit Card Debt On Your Own

That said, you typically need a good credit score to take advantage of this option. If you have a credit score of 600 or lower, you may still be able to find a lender willing to work with you, but you may have trouble getting the best interest rate.

Shop and compare different loan offers. Please pay attention to the Payment Conditions, Service Fees and General Terms of Service, which you know in advance.

Debt Management Plans (DMPs), not to be confused with debt settlement programs, work with your creditors to help you pay off your debt. DMPs, offered by nonprofit credit counseling companies, are designed for people who have no debt, such as credit cards or personal loans — they do not include other debts, such as student loans, car loans or mortgages.

If you want to take out a loan or don’t want to carry credit card balances, debt management software comes in handy. Ideally, the debt management company you work with will be able to negotiate a lower interest rate or waive certain fees.

What Types Of Debt Can I Consolidate?

If you choose this option, you must stop applying for new loans as adding new loans during the program may disqualify you.

Best for: Homeowners with the discipline to pay their debts in full.

If you’re a homeowner and have equity in your home, you can take out a home equity line of credit (HELOC) to get money that you can use to pay off your other debts. Remember that your home is used as collateral for the loan.

Because your home secures the loan, you get a lower interest rate than a personal loan or balance transfer credit card. However, if you fail to repay your loan, you could be evicted, making it one of the riskiest ways to consolidate debt.

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When considering this approach, make sure your total debt is less than half your pre-tax income. This will help you determine how much risk you are exposed to. If it’s more than half, it’s not worth putting your home at risk if you can’t afford it.

If you participate in an employer-sponsored retirement account, you can take it out as a loan and use the funds to pay off your debt. Typically, you can borrow up to 50% of the loan for a maximum of $50,000 over five years.

These loans generally have low interest rates and the interest paid goes back into your checking account. Unlike many other debt consolidation methods, no credit check is required, so it won’t affect your credit score.

The loan amount and exact repayment terms vary depending on the employer’s plan. Read what your plan offers to find out what you’re entitled to.

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While it’s a way to consolidate debt if you run out of options, keep it as a last resort as it requires using your retirement savings. If you default on your loan, your withdrawals may be taxed and you may have to pay a prepayment penalty.

Use mobile banking while you work to pay off your debt. Configure automatic uploads

Whether debt consolidation is right for you depends on your financial situation and the type of debt. Evaluate the pros and cons of debt consolidation before deciding if it’s right for you.

Debt consolidation can benefit some people depending on their situation. Do your research to understand what debt consolidation can and cannot do for you.

Ways To Avoid The Dangers Of Credit Card Debt

While debt consolidation is smart for some, it’s not always the best option. Some other credit card or balance transfer solutions that don’t require a credit card application:

Now that you know how to consolidate debt, see if this could work for you. Responsible debt consolidation can help you save money, pay off debt, and improve your credit score, but it’s not a silver bullet. Whichever method you choose, you’ll still need a plan to pay off your debt.

Learn how to save more to pay off your debt faster and reach your financial goals.

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Rebecca Lake has been writing about personal finance and business for nearly a decade. Her work has been featured on CreditCards.com, Credit Karma, Credit Sesame, and other personal finance sites.

This page is for informational purposes only. It does not provide financial, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to constitute, and should not be relied upon as, financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before entering into any transaction.

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How To Consolidate Credit Card Debt

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