5 Ways to Consolidate Credit Card Debt

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5 Ways for Consolidating Credit Card Debt
A consolidation plan for your credit card debt might be an option in the event that the new debt has a lower APR than those credit cards.


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Updated on September 27th, 2022.

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Credit credit consolidation can be described as a method that takes multiple credit card balances, and then combines them into a single monthly payment.
is ideal if the new debt is at a lower annual percentage rate than the credit cards you use. This will lower the cost of interest as well as make the payments easier to manage or reduce the payoff period.
The most efficient method of consolidating will depend on how much debt you're in and your credit score, among other factors.
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Here are five of the most efficient ways for paying off debt from credit cards:
Refinance using the 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 :
0% introductory APR period.
One year or more is enough to pay off debts without any interest.

Cons:
Credit score must be excellent or good to be able to get the loan.
Usually carries the cost of transferring balances.
The higher APR begins immediately following the initial period.

Also called credit refinancing for cards, this option allows you to transfer credit card debt onto an account that has no interest charges for a promotional period, often 12 to 21 months. You'll need good to excellent credit (690 credit score or higher) to qualify for most balance transfer cards.
A excellent balance transfer card does not have an annual fee, however some issuers charge a one-time cost for balance transfers of to 5% of the amount transferred. Before you pick a credit card, determine if the interest you earn over time will erase the cost of the fee.
Make sure to pay your balance down completely prior to the 0% intro APR period is over. Any balance left beyond that period will be subject to an ordinary credit card interest rate.
>> COMPARE:
2. Credit card consolidation loan
Pros:
Fixed interest rate means your monthly installment won't change.
Low APRs for those with good and excellent credit.
Direct payment to creditor is provided by certain lenders.

Cons:
Hard to get a low rate with bad credit.
Certain loans carry an origination fee.
Credit unions require membership in order to apply.

It is possible to take out an unsecured personal loan from a credit union, bank or an online lending institution to consolidate credit card or other types of debt. The ideal situation is that the loan will give you a lower APR on your debt.
are not-for-profit lenders that may provide members with more flexible loan terms and charges than other lenders. especially for borrowers with poor or fair credit (689 credit score or less). The maximum APR charged at federal credit unions is 18%..
Bank loans offer competitive APRs for good-credit borrowers, and benefits for existing customers of the bank may include greater loan amounts as well as rate discount.
Many online lenders let you pre-qualify to borrow without affecting your credit score. However, this feature is less common between credit unions and banks. Pre-qualifying lets you get a preview of the rate, loan amount and term that you can expect to receive once you formally apply.
Find lenders who have special offers for debt consolidation. Some lenders, for instance, will discount the rate for the credit consolidation loan or transfer the loan funds directly to your creditors, simplifying the process.
Are you unsure if a personal loan is the best choice? Use our to enter all of your debts into one place, see typical rates from lenders, and estimate savings.
>> COMPARE:
3. Equity in your home loan also known as line of credit
Pros:
In general, lower interest rates as compared to personal loans.
It is not necessary to have high credit scores to qualify.
Long repayment period keeps payments lower.

Cons:
You must have equity in your home to qualify to be eligible, and a home valuation is typically required.
Your home is secured and you may lose it if you fail to pay.

If you're a homeowner, you might be able to take out a loan or line of credit on the equity of your house and use the money to settle your credit cards or other debts.
A is lump-sum loan with an interest rate fixed and a line of credit works like a credit card with variable interest rates.
It is common for interest-only payments to be made during the draw period, which is typically the first 10 years. This means that you'll have to make more than the minimum payment in order to lower the principal, and also make an impact on your overall debt at this period.
Since that the loans can be secured with your home, you're likely to get an interest rate lower than that you'd find on the personal loan or credit card for balance transfer. However, you can also be evicted from your house if aren't able to keep up with your payments.
>> MORE:
4. 401(k) loan
Pros:
Lower interest rates than unsecured loans.
It has no effect of your credit scores.

Cons:
It could reduce the retirement savings of your.
Fees and penalties can be very high If you are unable to pay.
If you are fired or lose your job, you could have to quickly pay back your loan.

If you're a participant in an employer-sponsored retirement account like one called a 401(k) plan, it's not advisable to take a loan from it, since this can significantly impact your retirement.
Consider it only after you've removed balance transfer cards and other kinds of loans.
One benefit is this loan will not show up on your credit report, so it won't affect your score. However, there are some drawbacks when you don't pay the loan, you'll be charged a significant penalty and taxes on the outstanding balance and you could end up struggling with more debt.
Also, 401(k) loans typically expire in five years except if you are fired or terminate your employment and then due on tax day of the next year.
>> MORE:
5. Debt management plan
Pros:
Monthly fixed payments.
May reduce your interest rate by half.
It won't affect your credit score.

Cons:
Startup fees and monthly fees are typical.
It can take between three and five years to repay your loan.

roll several debts into one monthly payment with a lower interest rate. This option is ideal for people who struggle with debt from credit cards, but aren't eligible for other alternatives because of their low credit score.
Contrary to some consolidation options, debt management plans do not affect the credit rating of your. If your debt amounts to more that 40% of earnings and cannot be paid off within five years, then debt management may be a better option.
There is the debt management program through a nonprofit .
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Commonly asked questions What do you mean by debt consolidation?


Debt consolidation rolls multiple debts, like the high interest credit card or loans in one payment.







Should I consolidate to pay off my debt?


Debt consolidation might be an option if you can get lower rates of interest 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 faster.







What effect will consolidating debt have on my credit score?


Your credit score may briefly drop when a lender or card issuer does a hard credit inquiry. If you pay on time and avoid getting into of debt in the near future it could be positive.









What is debt consolidation?
Debt consolidation rolls several debts, such as loans or credit cards with high rates of interest loans in one payment.


Do I need to consolidate my the debt?
Debt consolidation might be a good idea when you're able to get an interest rate lower than the current rate across your debts. This could lower interest costs as well as lower the monthly installment or help you pay off debt more quickly.


What effect will consolidating debt have on my credit score?
Your credit score can briefly drop when a lender or credit card issuer makes an investigation into your credit. But if you pay on time and avoid getting into from debt for the future it could be positive.







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


Jackie Veling covers personal loans for NerdWallet.







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