Last Updated on December 8, 2023 by admin
Everyone pays bills. From feeding to utility bills to what-have-you. There’s no escaping it. But sometimes, those credit card bills become way bigger than one can handle. Truly, dealing with credit card debt can be quite overwhelming. If this is your situation, then you need to know the many options available to you. Credit card debt consolidation is one you might want to consider.
What is Credit Card Debt Consolidation?
To Consolidate your credit card debt means to merge multiple debts, whether credit card bills or loan payments, into a single payment account. It makes payment of debt so much simpler, and should ordinarily come with lesser interest rates.
That sounds like a great way to get out of debt, right? Who would not want to save themselves some extra money? Here are some ways to dive into Consolidating Credit card debt.
Five Ways to Consolidate Credit Card Debt
There are several ways to Consolidate your debt, each bearing its benefits. You get to determine what method works best for you. To form a balanced opinion, you should put into consideration how much debt you owe, your credit score, and a host of other factors.
Whatever you do, ensure to go for the best ways to consolidate debt without hurting your credit long-term.
#1. Balance Transfer
Also called credit card refinancing, balance transfer involves transferring all your debt into a new card. Think of it as a clean slate. Well, it is, because this new card has a zero percent interest rate.
● Cards offer a zero percent introductory APR.
● It favours people with a high credit score.
● Issuers of cards may charge a balance transfer fee
● The zero percent APR promotion only lasts for some time. After which, the money will begin to attract interest
#2. Credit Card Consolidation Loan
Debt consolidation loans are fast becoming a go-to option for most people. This is because people think it is easier to take a personal loan to pay off their credit card debts. That way, they only have to deal with paying back a single loan.
You can get a loan from an online lender, credit union or bank. Just search out the best consolidation loan options you can find.
● Good credit attracts lower interest rates.
● Loans come with flexible repayment terms you can select from, depending
on your budget.
● Some lenders send payments directly to your creditors, saving you stress.
● Requires a good credit score. If your score is below 680, you should
consider other options.
● Some lenders charge an origination fee
#3. Debt Management Plans
A debt management plan is a great option for credit card debt consolidation. If your credit score is on the low side, this is for you.
You can set up a debt management plan by getting in contact with a credit counselor. The goal is to walk you through your financial situation, and teach you how to tackle your debts.
● A debt management plan does not influence your credit score
● It gives lower interest rates
● You need to find the right credit counselor for you.
● You may end up unable to afford their fees.
#4. Home Equity Loans
A home equity loan allows you to borrow money using your house as collateral. The idea is that you can use the money you borrow, to pay off your credit card debt. Then work out a way to gradually pay off the home equity loan.
● Home equity loans will provide you with lower interest rates than personal
● They usually have a fixed rate, so you are sure your monthly payment rate
will not change.
● You stand a chance of losing your house when you do not pay up the loan.
Risky, isn’t it?
#5. 401(k) Loan
Ideally, you should not take out a loan from your employer-sponsored retirement account (401(k) plan). This is because doing so can hugely affect your retirement. So if it is among the options you are considering, it should be at the very least (you see, it is the last on my list as well).
● A 401(k) Loan has no impact on your credit report.
● It is a good option if you are sure to pay back the loan in good time.
● The window to pay back the loan is five years. That is if you do not leave
your job by then.
● It is worse if you leave your job. Then, the loan will become due within 60
● Failure to pay up attracts a tax on the borrowed amount, as well as other
If you are not careful with handling a 401(k) Loan situation, you just might find yourself struggling with more debt. Should You Consolidate Your Credit Card Debt?
Whether or not you should consolidate your credit card debt, is a decision you must make yourself. While it may be a great option for everyone, it may not be the right one for you. On the other hand, it just might be what you need.
You must take some time out to research your best options for consolidation before you commit yourself to any. Do well to stay away from any option that will pose a danger to you, your retirement plan or your house in the future.