5 Fab Ways to Consolidate Credit Card Debt

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Practically everyone has at least one credit card payment to make each month. Paying credit card debt can be a huge budget buster, especially if the consumer has multiple cards with high interest. Credit cards are practically thrown at customers by retailers, banks, and restaurants-just to name a few establishments. If cardholders make a minimum payment on several cards every month, it can take forever to pay them off. 

Consolidating credit card debt involves borrowing money at a lower interest rate to pay off credit card balances. This method makes managing money easier by creating a single payment each month. The added benefit is that the high interest credit cards go to a zero balance. This can boost the cardholder’s credit score if they are left open and unused. 

All of this sounds great, but what are the best choices for debt consolidation?

Topics:

 

– Debt Consolidation Loans

– Balance Transfers

– Tapping into Home Equity

– Credit Card Reduction Plan

– Professional Assistance

Debt Consolidation Loans

For the record, the need for credit card consolidation is real-very real. 

That’s one quarter, of one year, in one country! Worldwide, borrowers buried in billions of dollars in balances make a mad dash to find solutions for getting their finances under control. One common form of relief is a debt consolidation loan.

A consolidation loan is a type of unsecured credit specifically used to pay off other debt. More often than not, it is a personal loan. The application and approval process is much the same as other types of loans. The odds of approval improve greatly if the borrower applies with a financial institution where he already has accounts or credit. But if that’s not possible, it makes sense to try to get a loan elsewhere because of the many benefits, which include:

  • The monthly payment for consolidation loans are the same each month.
  • Consolidation loans have a fixed interest rate.
  • Like an auto loan or mortgage, the loan has a preset duration. The borrower is always aware of how close they are to paying off the debt.
  • Some banks will let account holders use savings accounts or a CD as collateral for a bill consolidation loan.

Funds from a consolidation loan are used to pay off high balance credit cards. It’s important to make the loan payment on time to preserve credit and avoid late fees. The zero-balance credit cards should not be closed because the unused available credit will improve the borrower’s debt ratio and credit score. But borrowers cannot double down on debt by using the credit cards plus carry the loan consolidation debt.

Balance Transfers

Transferring all high interest credit card debt to a low interest card is another way to get balances to zero. Lenders offer low to zero interest credit cards for a promotional period. If the entire balance is not paid at the end, interest will be charged at the prevailing rate. In theory, the borrower pays off the new credit card within the promotional period and the story ends well. Although it does work that way for some people, many others are unable to pay in full, which is what a lot of lenders count on.

Balance transfers can be tricky for this and other reasons, such as:

  • Borrower might not be approved for a credit limit high enough to pay off all cards.

 

  • Interest rates are not fixed, which means they could be pretty high after the promotional period.
  • Some credit card lenders charge a fee to transfer balances, which could get costly. For example, if the transfer fee is 5% and the borrower is transferring $6,000, that’s an added expense of $300.

 

  • Some people are tempted to use the old credit cards, creating more debt.

Balance transfers have their good and not-so-good points. People who are considering a balance transfer definitely need to plan ahead of time. When all factors are weighed, it should not cost more in the long run to transfer debt from one place to another. Consumers that really stay on top of their finances have the most success with this consolidation option.

Tapping into Home Equity

Home equity loans are popular with homeowners with credit card debt to consolidate. These loans involve borrowing against the equity in the home. The residence is the collateral to secure the loan. Interest rates for home equity loans are usually lower than other loan products. Homeowners can borrow more than the credit card balances to use for other purposes, if they have enough equity.

Of course, there are a few disadvantages of borrowing against equity in a home. Most importantly, defaulting on this loan can lead to the loss of the home through foreclosure. Homeowners should use caution with this and any other type of credit that could put their home at risk. Some borrowers decide to tackle debt head on and pay off credit cards rather than applying for new credit.

Credit Card Reduction Plan

Rather than taking on added debt, people are creating ways to pay off credit cards themselves. By all accounts, this course of action is by far the best choice. It does not leave a trail of residual debt behind, and borrowers can avoid nasty collection actions. It takes time, patience, and determination to follow and complete a credit card reduction plan. Well worth the feeling of accomplishment and freedom after it’s done.

There are certain methods that will make the plan work smoothly.

Depending on how much they owe, some people pay off cards with the lowest balance first. This can give them a sense of gratification when they see no balance and no bill to pay on those cards.

Some borrowers choose to pay credit cards with huge balances first to save thousands of dollars in interest, even though it takes longer.

The most important thing is to make the plan and stick to it. The goal is the same regardless of the method used. Many consumers do the following to succeed:

  • Place credit card payments on autopay to stay consistent.
  • Put proceeds from bonuses, tax returns or other unexpected cash toward resolving credit card debt.
  • Post their plan and financial affirmations on the mirror or refrigerator as a reminder and encouragement.
  • Get an accountability partner for support.

Professional Assistance

Unfortunately, far too many consumers become desperate to get out from under credit card debt. Many of them simply ignore the problem, while others file for bankruptcy, believing it is the only solution. Help is available for any borrower that has tried everything, including making a payment plan with the lender. For example:

  • With debt settlement, the creditor agrees to take less than the balance owed as full payment. The settlements are negotiated by debt relief companies.
  • Debt relief companies make payments to creditors on behalf of the borrower, who pays a monthly amount that includes the credit card payment and fees. 

In general, debt consolidation options do not include secured credit like car and house debt. Borrowers must budget carefully since they will have their credit card consolation bill along with their other regular monthly bills. All of this may seem overwhelming, but it can be done. Every day, millions of people go from credit card debt bondage to full financial freedom through debt consolidation.

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Sheila Kay

Sheila Kay is an author, ghostwriter and editor residing in the Atlanta, GA area. Among her favorite writing genres are creative nonfiction, self-improvement, and finances. Her first published book, PTSD and the Undefeated Me, is a memoir which has been a stepping stone to her involvement with mental health advocacy for military and civilian men and women. She is currently working on the first fiction novel to be published under her name. For more information or to purchase her books, visit Sheila’s Author Page on Amazon.com.

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