When you combine several credit card balances into one monthly payment, ideally with an interest rate lower than what you are now paying, you are said to be consolidating credit card debt. Consolidating your debt takes time, and many solutions require an application process to check whether you’re authorized first.
You can find out whether credit card consolidation is the best option for you and your debt by comparing the best low interest debt consolidation loans alongside the six fastest ways to pay off credit card debt.
Collaborate with a Non-Profit Credit Counseling Agency
Organizations that offer credit counseling assist you in developing a strategy to address your financial difficulties. They guide credit problems, budgeting, handling money and debt, and the reality of payday loans.
The benefit of cooperating with a credit counseling agency is that they will negotiate a debt management plan on your behalf with your creditors, entitling you to a single monthly payment to the agency. The organization subsequently pays your creditors with the funds you give them.
The drawback is that if you enroll in a debt management plan, you might have to pay a fee to specific credit counselors, and you might be required to promise not to use your current credit or get new credit.
Request a Personal Loan
You can clear off your credit card bills with the money from a debt consolidation loan and consolidate debt with a personal loan.
If your credit is strong, you might be able to get a personal loan at an interest rate that is lower than what the companies who issue your credit cards are charging. Personal loans include adjustable repayment schedules so you can choose the best fit for your financial situation.
But to be eligible for a personal loan, you must meet the lender’s conditions. If you’ve already experienced financial troubles, you could not be qualified, or you might only be eligible for an interest rate similar to your credit card rate.
Use a Credit Card for Balance Transfers
You can transfer sums from one or more credit accounts to another card using a balance transfer. In addition, you may avoid paying interest on the transferred sum if you repay the balances you move before the introductory period ends.
However, the promotional window is short. The transferred amount will incur interest at the card’s standard rate if you don’t pay it off before the intro period expires. Additionally, some cards have a balance transfer fee that increases the debt you have to pay back. The overall sum you transfer—including any fees—cannot exceed your credit limit.
Cash-Out Vehicle Refinancing
Some lenders provide cash-out refinance auto loans, which let you borrow money against the value of your car to cover additional costs like credit card debt consolidation. However, you risk losing your vehicle if you can’t keep up with your payments.
Credit Line or Loan for a Home Equity
If you own a property, you might be able to borrow money or open a credit line against the equity and use it to pay off credit card debt or other bills.
You’re likely to get a lower rate than you would on a personal loan or balance transfer credit card because your home secures the loans. But you risk losing your house if you don’t make your payments.
Retirement Account Loan
It could be appealing to spend some money from your employer-sponsored retirement account to settle your debts if you have one. As long as your plan offers a loan option—some don’t—retirement account loans don’t require a deposit check, and interest rates are often cheaper than what you’d pay at a traditional lender. However, if you cannot make your payments, the money you drew may be subject to taxation, and you may also be required to pay the penalty. You’re passing up a chance to increase your retirement income since the money you borrow won’t accrue interest.
Reasons to Consolidate Your Debt
- Spending exceeds income in your household
- Your credit card debt is increasing
- You’re merely paying the bare minimum toward your debt
- Due to your high debt-to-income ratio, you were denied a credit card or retail installment loan
- Your credit card limitations are either close to or being reached
- You have outstanding balances on credit cards with interest rates that are higher than 18.99%
Reasons Not to Consolidate Your Debt
- Missing rent or mortgage payments each month
- Accumulating utility bill debt
- Exceeding the credit card limit
You may resolve your financial problems by combining your credit card debt into a single payment, particularly if you can do so at a cheaper interest rate.
However, create a budget to help you limit spending while paying off your debt before consolidating your credit cards. You can select the best credit card consolidation strategy once you have a plan. Additionally, avoid choosing a debt consolidation strategy that could jeopardize your retirement, home, or vehicle.