5 Strategies for Consolidating Credit Card Debt

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5 Strategies for Consolidating Credit Card Debt
A consolidation plan for your credit card debt might be a good idea when the new debt is a lower APR than your credit cards.


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Last updated on Sep 27, 2022

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Credit consolidating debt is an technique that takes several credit card balances, and then combines them into one monthly payment.
It is recommended that the new debt is at the lowest annual percentage rate than your credit cards. This can reduce interest costs and make your monthly payments easier to manage or reduce the payoff period.
The most effective method to consolidate depends on the amount of debt you're in, your credit score and other factors.
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Here are five of the most effective ways in order to repay credit card debt:
Refinance using a credit card that allows balance transfers.
Consolidate your personal loan.
Tap home equity.
Think about 401(k) savers.
Start a debt management plan.

1. Balance transfer card
Pros :
APR introductory period of 0.
A year or more to pay off debt without the cost of.

Cons:
Requires good to excellent credit to qualify.
Usually carries an amount for balance transfer.
Higher APR starts following the initial period.

Also known as credit refinancing for cards, this option transfers credit card debt to a credit card that does not charge interest for a promotional periodof often 12 to 21 months. You'll need good to excellent credit (690 credit score or better) to be eligible for the majority of balance transfer cards.
A excellent balance transfer card doesn't charge an annual fee, however many issuers charge a one-time balance transfer fee of 3 to five percent of the total amount transferred. Before you pick a card, calculate whether the interest savings you make over time will erase costs associated with fees.
Aim to pay your total balance before the 0% initial APR period ends. Any balance remaining after that time will have the regular interest rate.
>> COMPARE:
2. Consolidation of credit cards loan
Pros:
Fixed interest rate means that your monthly payment won't change.
Low APRs for good and excellent credit.
Direct payment to creditors offered by some lenders.

Cons:
Hard to get a low rate with bad credit.
Certain loans come with an origination cost.
Credit unions require membership to apply.

It is possible to take out an unsecured personal loan from a credit union, bank or online lender to pay off credit card debt or other kinds of debt. In the ideal scenario, the loan will offer you an APR that is lower on your debt.
are not-for-profit lenders that may provide members with more flexible loan terms and costs than lenders online, particularly for borrowers who have fair or bad credit (689 credit score or less). The maximum APR for federal credit unions is 18%..
Bank loans offer competitive APRs for those with good credit and the benefits for bank customers may include larger loan amount and rate discounts.
Many online lenders let you pre-qualify to borrow without affecting your credit score. However, this option isn't as popular with credit unions and banks. Pre-qualifying gives you a preview of the interest rate, loan amount and term that you can expect to receive once you have applied.
Look for lenders that provide special services to help you consolidate debt. Some lenders, for example that offer discounts on the credit consolidation loan or even transfer the loan funds directly to your creditors, simplifying the process.
Not sure if a personal loan is the best choice? Make use of our tool to record all of your debts in one place, see the typical interest rates of lenders, and estimate savings.
>> COMPARE:
3. The home equity loan also known as line of credit
Pros:
The typical interest rate is lower as compared to personal loans.
May not require good credit to qualify.
A longer repayment time helps keep payments less.

Cons:
Equity must be present in your home in order to qualify for a mortgage, and a home appraisal is typically required.
Your home is secured, which you can lose in case you default.

If you're an owner, you could be able avail a loan or credit line on the equity in your house and use this to repay credit card debts or other obligations.
A is lump-sum loan with an interest rate fixed and a line of credit is similar to credit cards with an interest rate that is variable.
It is common for interest-only payments to be made during the draw period which typically lasts for 10 years. This means that you'll have to pay greater than the minimal payment due to reduce the principal amount and put an impact on your overall debt at the period of.
Since these loans are secured by your home so you're likely to pay lower rates than you'd get with the personal loan or credit card for balance transfer. However, you may lose your home if you fail to pay your bills on time.
>> MORE:
4. 401(k) loan
Pros:
Lower rate of interest than non-secured loans.
It has no effect of your credit scores.

Cons:
It could reduce your retirement savings.
Fees and penalties can be very high if you can't repay.
If you quit or lose the company, then you could need to repay your loan.

If you are a member of an employer-sponsored retirement account like the 401(k) plan, it's not advisable to take a loan from it, since it could have a significant impact on your retirement.
Consider it only after you've removed balance transfer cards and other types of loans.
The benefit is that the loan will not show up in your credit file, meaning there's no impact to your credit score. But the drawbacks are significant when you don't pay, you'll owe a hefty penalty and taxes on the outstanding balance and you could end up facing debts that are more.
Also, 401(k) loans typically will be due in five years, except if you are fired or terminate your employment; then they're due on tax day of the following year.
>> MORE:
5. Debt management plan
Pros:
Payable on a fixed monthly basis.
Might cut your interest rate by half.
Credit score doesn't suffer.

Cons:
Monthly and startup fees are not uncommon.
It may take three to five years to repay your debt.

combine several debts into a single monthly payment at a reduced interest rate. This option is ideal for people who struggle to pay off credit card debt, but don't qualify for other options due to a poor credit score.
Unlike some credit card consolidation alternatives, debt management plans don't affect your credit score. If your debt is greater that 40% of income and cannot be paid off within five years, then might be a better choice.
There is the debt management program through a nonprofit .
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Most frequently asked questions What exactly do you mean by debt consolidation?


Debt consolidation consolidates multiple debts, like high-interest credit cards or loans, into a single payment.







Do I need to consolidate my the debt?


Debt consolidation could be a good idea in the event that you are able to obtain a lower interest rate than the current rate for your debts. This will lower the cost of interest and lower your monthly payments or allow you to pay off debt more quickly.







What effect will consolidating debt have on my credit?


Your credit score can temporarily dip when a lender or card issuer does a hard credit inquiry. But if you pay punctually and remain out from debt for the future it could be positive.









What is the term "debt consolidation?
Debt consolidation consolidates multiple debts, including loans or credit cards with high rates of interest loans in one payment.


Do I have to consolidate the debt?
Debt consolidation could be an option in the event that you are able to obtain a lower interest rate than the current rate on your debts. This would reduce interest costs, lower your monthly payment or help you pay off debt faster.


How will consolidating debt affect my credit score?
Your credit score could briefly drop when a lender or card issuer does a hard credit inquiry. However, if you pay your bills on time and stay out of financial debts in the near future it could be positive.







About the authors: Steve Nicastro is a former NerdWallet authority on personal loans as well as small business. His work has been highlighted by The New York Times and MarketWatch.


Jackie Veling covers personal loans for NerdWallet.







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