Three Steps for Consolidating Credit Card debt for the new year

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3 Steps to Consolidating Credit Card Debt in the New Year
Debt consolidation consolidates multiple debts into one monthly payment with a lower interest rate and could help you get rid of credit card debt this year.
By Jackie Veling Lead Writer Buy now, pay later loans and debt consolidation personal loans Jackie Veling covers the personal loans to NerdWallet. Her work has been highlighted by The Associated Press, MarketWatch, MSN, Nasdaq.com and Yahoo Finance. Before this, she was the manager of a writing and editing freelance businesswhere she worked with a variety of clients, including U.S. Bank and Under Armour. Her graduation from Indiana University with a bachelor's degree in journalism.





Jan 18 Jan 18, 2023


Editor: Kim Lowe Lead Assigning Editor Consumer loans Kim Lowe leads the personal loans editorial team. Kim Lowe joined NerdWallet after 15 years managing content for MSN.com that covered food, health, and travel. She started her career as a writer for publications covering mortgages, supermarket and restaurant industries. Kim obtained her bachelor's degree in journalism at The University of Iowa and a Master of Business Administration from the University of Washington.







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New year is a time for making resolutions, and by 2023 you could be determined to get control of your finances. For many, this means cutting down on excessively high-interest debt on credit cards.
Credit card balances increased by 15 percent in the third quarter of 2022 as compared to the same quarter in 2021 -- the highest increase in 20 years according to the most recent Federal Reserve household credit report and debt. Delinquencies, though still at historic lows are also rising. Due to the higher prices for interest on loans, carrying a balance is more expensive, making it easier to go deeper into debt.
But there's a strategy that can help. Debt consolidation, the process which combines multiple debts into a single monthly payment at a lower rate of interest, can be a lifeline for those who are unable to overcome debt making the minimum payments alone.
Follow these steps to consolidating credit card debt in the new year.
1. Find the right consolidation tool to help your score on credit and your debts
Two main tools for consolidating credit card debt include a balance-transfer credit card or the credit consolidation loan. Both are based on rolling your debts into one payment.
If you have a balance transfer card, you transfer higher-interest account balances on credit cards to it, and then pay off the balance at a lower interest rate. In addition, most balance-transfer cards offer a promotional period of 0%, typically lasting 15 to 21 months, in which you don't pay interest, so you can get out of debt even quicker.
Balance transfer cards can require a fee to transfer funds- typically 3% to 5% of the total amount transferred amount. They are only available to borrowers with excellent credit (690 credit score or higher).
A is a personal loan that is available to borrowers across the credit spectrum via online lenders, banks as well as credit unions. When you take the loan to pay off your credit card debts you'll have one monthly installment that is fixed for the duration of the loan generally between two and seven years. Personal loans tend to lower interest rates than credit cards, which means you should still save money on interest.
Tiffany Grant, an accredited financial counselor from Greensboro, North Carolina, says she doesn't have a strong preference among the options but advises clients to look into credit scores.
"Because these products work similarly, it's more about what you'll be accepted for." Grant says. "Some customers aren't eligible for an interest-free card, and therefore have to do a low-percent individual loan."
Plugging your balances and interest rates into a single account can aid in your decision-making because it will show the amount of your debt. For instance, a balance transfer card is a good fit only if you have an adequate credit limit to pay off your debt and pay it off during the promotional period.
If the rate difference between a consolidation tool and the debt you have tiny -- say just a few percentage points -- it could be better to avoid consolidation and not risk the hit on your credit rating when applying for a new credit line according to Grant. In that case, consider alternative options .
2. Apply with a lender and be approved
Once you've decided on the consolidation tool you want to use now is the time to put it into use.
Applications for balance-transfer cards and debt consolidation loans are usually available online. They may require you to supply personal details such as you Social Security number, address and contact details, and income and employment information.
If you're looking to apply an interest-free debt consolidation loan it is possible that you will be able to pre-qualify, which lets you view possible loan conditions without impacting your credit score. If you can't pre-qualify, be sure to pay attention to the criteria for qualification on the lender's website, such as a minimum credit score.
When assessing your application, lenders look for a history of on-time repayments, an acceptable credit-utilization ratio and minimal credit inquiries, according to Sarah DuBois, a spokesperson for Wells Fargo, which offers the balance transfer card as well as a consolidation loan.
You can also take action to boost your chances of being approved, says DuBois, like paying off an existing balance, which lowers your credit utilization or contesting an error that appears in your credit file.
Once you have been approved, the next steps will vary depending on the specific product. For instance, for an account with a balance transfer feature you may initiate the transfer of your existing debts online or over the calling the new card issuer. The transfer could take anywhere from a few days to several weeks.
In the case of the purpose of a consolidation loan you can receive the funds into your bank account, which you can use to repay your credit cards. Other lenders may send the funds directly to creditors on your behalf.
Do you want to consolidate your credit card debts? Consider whether you're pre-qualified
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3. Pay on time and create a strategy to stay out of debt
While consolidation can be a smart move however, it's only effective if you pay off the debt you've taken on and avoid the temptation to build up the credit on the newly released credit cards.
that will prioritize your next monthly installment so that you don't get penalized for late fees. In the event of a late payment, it can affect your credit score if they are reported to the credit bureaus.
Also, plan how you'll stay out of debt in the future. Grant says that the majority of her clients aren't in debt as a result of their poor spending habits, but because they couldn't cover unplanned expenses, like car repairs or medical bills.
Grant suggests putting aside a $1,000 emergency fund to avoid a cash shortfall. And don't wait till you're free of debt before you start, she says as unexpected expenses could appear at any time, causing you to slide backwards.
Instead, save any money you have in savings accounts that earn interest and still make your monthly installment.
"Maybe it might take a more time, but you can do both and in the majority of situations, that's ideal," Grant says.


Author bio Jackie Veling covers personal loans for NerdWallet.







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