You might have seen many people taking a new loan to pay off their previous debts and loans. This practice of paying your debts by taking a huge loan, which you get at a much lower interest rate and low monthly installment, is called debt consolidation. Some other debt consolidation ways that you can consider are buying a new credit card or enrolling for a debt management plan that will guide you in clearing all your debts.
If you feel that you cannot manage your credit card debt without any help, you can choose to consolidate your credit card debt. In this article, you will learn about 5 tactics that will help you consolidate your credit card debt the right way.
Buy a 0% balance transfer card
- If you have a great credit score, preferably above 690, you are qualified to buy a balance transfer credit card. This type of credit card allows you to transfer all your credit card debts into one single card, which means that now you don’t have to worry about paying multiple bills and you just have to pay one credit card bill.
- The best thing about these cards is that they often come with a promotional period that lasts for a year or a year and a half, where you don’t have to pay any interest charges.
- If you wish to consolidate your credit card debt in this way, just make sure that you plan your payment from the beginning in such a way, that you pay off your entire debt within the promotional period. In this way, you will be able to escape the credit card interest rates that apply on the balance, once the promotional period ends.
- Note that some banks charge a transfer fee of about 3% for the balance transfer you do initially and there are few who also charge an annual fee.
So, the best way to go about with it is to sit down and figure out whether you will be saving up a substantial amount of money by buying the card or you will be spending extra and then accordingly decide.
Take a personal loan with a low interest
- Another way in which you can consolidate your credit card debt is by considering taking a personal loan that will help you pay off all your debts. Today, you can take a personal loan at a low-interest rate from local banks, credit unions or online lenders.
- Again, note that you will need an excellent credit score if you want a personal loan with the lowest interest rate.
- If you have a low credit score, then your best bet would be checking out the credit unions as they give personal loans at a lower interest even to people with low credit score.
- If you want a personal loan without going through a hard credit score investigation, then check out online lenders. You might have to pay an upfront amount as an origination fee to the online lender.
- If you want to check out the top online lenders, the best thing to do is to check with the Better Business Bureau. You can also check if the lender is credible or not by calling up the state Attorney General’s office or contacting the Department of Banking or Financial Regulation.
- Make sure you do a thorough research on the local banks, credit unions and online lenders and their interest rates before you apply for a personal loan. Beware of anyone that agrees to give you a personal loan without caring about your credit score or those who demand a huge fee as an origination fee.
Consider home equity loans and line of credit
- This is another popular way in which you can consolidate your credit card debts and be debt free.
- If you own a house, then you can get a home equity loan or a line of credit based on the equity of your house.
- In case of the home equity loan, you have to pay a fixed interest rate, whereas a line of credit has a variable interest rate, just like your regular credit cards.
- Home equity loan gives you a lower interest loan compared to the unsecured personal loan. The best part about this option is that you do not require a great credit score to get this loan. All you need is to apply for a loan against your home.
- Note that this option is risky because you might lose your house if you are not able to pay off all your debts in the mentioned period.
If you have a decent credit score, then you would not have trouble consolidating your credit card debts. The truth is that whichever means you choose to pay off your debt, it will have its own pros and cons. Just remember that consolidation of your credit card debts is not the end of your financial crisis but just an alternative solution.