Is It Smart To Consolidate Credit Card Debt

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Credit card debt can seem overwhelming, especially if your cards have high interest rates or you have multiple cards with balances. If you’re struggling to pay off your credit card debt, consider a debt consolidation strategy.

Is It Smart To Consolidate Credit Card Debt

Credit card debt consolidation is when you take your existing credit card debt and refinance it into one new loan with a new lender, ideally with better terms. There are many ways to consolidate debt, such as balance transfer cards, personal loans, credit card consolidation loans, home equity loans, home equity lines of credit (HELOCs), 401(k) loans, and debt management plans. Credit card debt consolidation can save you money and make your payments easier. Here are 6 ways to do it.

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A balance transfer credit card allows you to transfer existing balances from other credit cards. If you qualify for a card that offers a 0% introductory annual balance transfer rate (APR), you can save money on interest. During the introductory period, you can progress toward paying off your existing credit card debt without worrying about accruing additional interest. If you can pay off the entire balance before the end of the introductory period, you can avoid paying extra interest on your existing debt.

However, any balance after the promotional period ends will accrue interest at the card’s regular balance transfer APR. This can be high, so be sure to pay attention to the card’s regular APR when calculating your budget. Of course, after the introductory period ends, you can transfer the remaining balance to a new 0% APR card if you can get one. Call it a rinse and repeat strategy. (Keep in mind that opening a new credit card may mean a temporary drop in your credit score.)

You should always review the card’s terms and conditions. The best balance transfer credit cards have long initial financing periods and charge a minimal balance transfer fee, such as 3% of the amount transferred. Paying the fee could be worth it if you would save money overall by paying off the debt during the initial financing period.

Some balance transfer cards can revoke your initial financing offer if you make a late payment, so it’s best to put automatic payments or reminders on your calendar to pay your credit card bill. You also cannot transfer a balance above the card’s credit limit. If the amount you’re transferring is close to your total balance, it can negatively affect your credit score because your credit utilization ratio will be high. Some lenders may also charge over-limit fees.

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Card_name offers balance_transfer_intro_apr, balance_transfer_intro_duration for balance transfers and intro_apr_rate, intro_apr_duration for new purchases with balance_transfer_fee. It also offers 1.5% cash back on all purchases, 5% cash back on travel booked through Chase and 3% back on restaurant and drugstore purchases. There is an annual fee for this card.

Personal loans can be used for a variety of purposes, such as financing a home renovation or consolidating other existing debts. Personal loans can be secured or unsecured. Unsecured loans are not backed by collateral, such as equity or a vehicle, and are repaid in regular monthly installments.

If you are considering using a personal loan to consolidate credit card debt, you should compare the loan’s interest rate to the rate on your existing debt. Most personal loan interest rates are relatively high, but your existing credit card interest rate may be even higher.

The best personal loan rates will be reserved for applicants with excellent credit. Personal loans may have additional fees and penalties, such as approval fees, late payment fees, prepayment fees, and application fees.

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Credit card consolidation combines multiple debts, such as credit cards or existing personal loans, into one loan with one monthly payment, ideally at a lower interest rate than the average rates of your previous loans. If you qualify for a lower rate with credit card loan consolidation, you can save significant money on interest. Plus, it can be easier to make one monthly payment instead of having to remember to make multiple payments each month.

Once you are approved for a credit card consolidation loan, the lender will pay you a lump sum to pay off your existing debts. You will then make monthly repayments on your debt consolidation loan. Payments are usually fixed over the repayment period, which is usually two to seven years.

However, you must have a good enough credit score to qualify for a debt consolidation loan. If you don’t qualify for one large enough to cover your existing debt — or if the loan you qualify for has a higher interest rate than your existing debt — credit card consolidation may not be a good option for you.

Home equity loans and home equity lines of credit (HELOCs) are secured by the value of your home. This makes the loans less risky for the lender, allowing them to offer lower interest rates than personal loans or other types of unsecured loans. Home equity loans and HELOCs tend to have long repayment terms, with lower monthly payments. Some HELOCs only charge interest during the initial draw period, which is usually 10 years.

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With home equity loans and HELOCs, you risk losing your home if you default on your payments because the lender can foreclose on your home if you default on the loan. Home loans and HELOCs may charge closing costs of up to 5% of the loan amount, and some HELOCs charge annual fees.

If you have a 401(k) loan from your employer, you may be able to take out a 401(k) loan for credit card debt consolidation. A 401(k) is a qualified retirement investment account made up of money deducted directly from your paycheck on a pre-tax basis. The maximum amount of money you can borrow from a 401(k) loan is the greater of (1) $10,000 or 50% of your net balance or (2) $50,000, whichever is less.

The interest rate on 401(k) loans is usually lower than on credit cards and personal loans. Plus, the interest you pay goes back into your retirement account, not the bank. 401(k) loans are also easier to get because no credit check is required because the loan is secured by your retirement savings. However, most 401(k) loans must be repaid within five years. If you quit your job, the loan will be fully repaid within 60 days.

A debt management plan is an informal agreement with your creditors to pay off your existing debt in one monthly payment to your new credit counselor – you must work with a credit counselor to get one. With a debt management plan, you pay one monthly payment to a debt collection company that pays all of your creditors for you.

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To qualify for a debt management plan program, you must be current on your payments and owe at least $1,000 in unsecured debt. You don’t have to take out a new line of credit with a debt management plan, but you may need to close existing lines of credit as part of a debt management program.

If you’re approved for a debt management program, a credit counselor will work directly with each of your creditors to negotiate a lower interest rate and possibly waive some fees. Interest rates can be significantly lower, helping you pay off your debt faster.

Once you’ve created a plan, you may want to use Quicken to automate your budgeting and debt management. If you want to rebuild your credit while managing your debt, you may want to check out the Brigit software program to help you build a positive payment history.

There are several predatory debt management programs out there. Please do your research before sending any sensitive information.

Ways To Consolidate Debt

If you have credit card debt, consolidating it into one loan can help you streamline your finances and save money on interest. Credit card consolidation can ultimately help you pay off your debt faster and easier.

Before choosing a strategy, compare the interest rates, terms, monthly payments and fees of your existing and new loans to see if credit card consolidation is the right solution for your particular situation. If you decide to consolidate your credit card debt, you should make a plan to pay off the debt and manage your finances so you don’t take on more debt.

Credit card consolidation is when you take your existing credit card debt and refinance it into one new loan with a new lender, ideally with better terms. There are several ways to consolidate credit card debt that can save you money and make your payments easier.

Credit card consolidation can save you money on interest if you can qualify

When Is The Right Time To Consolidate Your Credit Cards?

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