5 Ways to Consolidate Credit Card Debt

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5 Ways for Consolidating Credit Card Debt
The consolidation of your debts on credit cards might be beneficial if the new debt has an APR that is lower than the one on your credit cards.


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Last updated on Sep 27, 2022.

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Credit card debt consolidation is a method which takes multiple credit card balances and combines them into a single monthly payment.
is ideal if your new debt has a lower annual percentage rate than your credit cards. This could lower interest costs, make your payments easier to manage or reduce the time to pay off.
The most effective method to consolidate will depend on the amount of debt you're in and your credit score, among other aspects.
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Here are five of the most effective ways for paying off debt from credit cards
Refinance using the balance transfer credit card.
Consolidate with a personal loan.
Tap home equity.
Think about 401(k) savings.
Start a debt management plan.

1. Balance transfer card
Pros :
APR for the first month is 0%.
One year or more is enough to pay off debts without interest.

Cons:
Credit score must be excellent or good for approval.
Usually, it is the cost of transferring balances.
Higher APR starts following the initial period.

Also known as credit refinancing of a credit card, this method transfers credit card debt to a credit card that does not charge interest during a promotional time, usually between 12 and 21 months. You'll need good to excellent credit (690 credit score or higher) to be eligible for many balance transfer cards.
A excellent balance transfer card doesn't charge an annual fee. However, most issuers charge a once-off cost for balance transfers of to 5percent of the amount transferred. Before you choose the right card, consider whether the interest you save over time will wipe out the cost of the fee.
Make sure to pay your total balance before the 0% intro APR period is over. Any remaining balance after that time will have an ordinary credit card interest rate.
>> COMPARE:
2. Consolidation of credit cards loan
Pros:
Fixed interest rate means your monthly payment will not change.
Low APRs for those with good or excellent credit.
Direct payment to creditors offered by certain lenders.

Cons:
It's difficult to get a lower rate even with poor credit.
Some loans have an origination charge.
The credit unions need membership before they can apply.

You can take advantage of an unsecure personal loan from banks, credit unions or an online lending institution to pay off credit card or other types of debt. Ideally, the loan will offer you lower interest rates of your credit card.
are not-for-profit lenders that may provide their customers with more flexible loan terms and lower rates than online lenders, particularly for borrowers with poor or fair credit (689 credit score or less). The maximum APR charged at federal credit unions is 18%.
Bank loans provide competitive APRs for borrowers with good credit, and the benefits for customers of the bank may include greater loan amount and rate discounts.
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 gives you a preview of the interest rate, loan amount and term that you can expect to receive once you formally apply.
Find lenders who provide special services to help you consolidate debt. Certain lenders, like they will offer a discount on a loan for debt consolidation loan or even transfer the loan funds directly to your creditors, easing the process.
Are you not sure if a private loan is the best choice? Make use of our tool to record all of your debts in one location, view typical rates from lenders and calculate savings.
>> COMPARE:
3. The home equity loan (also known as a line of credit)
Pros:
In general, lower interest rates that personal loans.
It is not necessary to have an excellent credit score to be able to apply.
A longer repayment time helps keep payments lower.

Cons:
Equity must be present in your home for you to be eligible to be eligible, and a home valuation is often required.
You are secured by your home and you may lose it in case you default.

If you're homeowner you might be able to get a loan or line of credit on the equity you have in your house and make use of this to repay credit card debts or other obligations.
A is lump-sum loan with a fixed interest rate and a line of credit works like credit cards with an interest rate that is variable.
A often requires interest-only payments during the draw time, which is usually the first 10 years. That means you'll need to pay higher than your minimum required to lower the principal amount and put a dent in your overall debt during this period.
Because these loans come with the security of your home so you're likely to pay an interest rate lower than that you would find on the personal loan or credit card for balance transfer. However, you may be evicted from your house if you fail to pay your bills on time.
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4. 401(k) loan
Pros:
Lower interest rates than unsecured loans.
No impact on your credit score.

Cons:
It could reduce the retirement savings of your.
A large penalty and charges If you are unable to pay.
If you are fired or lose your job, you could need to repay your loan.

If you're a participant in an employer-sponsored retirement account , such as the 401(k) plan It's not recommended to get a loan from it, since this could significantly affect your retirement.
Think about it after you've ruled out balance transfer cards and other kinds of loans.
The benefit is that the loan isn't listed when you check your credit score, so there's no impact to your score. However, the disadvantages are substantial If you are unable to repay the loan, you'll be charged a significant penalty and taxes on the outstanding balance and you could be left struggling with more debt.
Additionally, 401(k) loans typically are due in five years until you lose your job or quit; then they're due on the tax day of the following year.
>> MORE:
5. Debt management plan
Pros:
Payable on a fixed monthly basis.
Could lower the interest rate in half.
Credit score doesn't suffer.

Cons:
The cost of starting a business and the monthly fee are common.
It can take between three and five years to repay your debt.

Combine several debts into one monthly payment, with a lower interest rate. It works best for those who are struggling in paying off debts from credit cards, but aren't eligible for other alternatives because of a low credit score.
In contrast to other credit card consolidation options, debt management programs do not affect your score on credit. If your debt is more that 40% of income and isn't able to be paid back within five years, then debt management may be a better option.
You can find an option to manage your debt through a nonprofit .
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Frequently asked questions What do you mean by debt consolidation?


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







Do I have to consolidate debt?


Debt consolidation could be a smart idea when you're able to get lower interest rates than the current rate on your debts. This would reduce interest costs and lower your monthly payments or allow you to pay off debts faster.







What will consolidating debt do to my credit score?


Your credit score may temporarily dip when a lender or card issuer conducts a hard credit inquiry. However, if you pay your bills punctually and remain out of debt in the near future it could be positive.









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


Do I need to consolidate my debt?
Debt consolidation could be an ideal option in the event that you are able to obtain an interest rate that is lower than the current rate across your debts. This would reduce interest costs and lower your monthly payments or allow you to pay off debts faster.


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. However, if you pay your bills on time and stay out from debt for the near future, the overall effect could be positive.







The authors' bios: Steve Nicastro is a former NerdWallet expert on personal loans and small-business loans. His work has been highlighted by The New York Times and MarketWatch.


Jackie Veling covers personal loans for NerdWallet.







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