4 Ways to Consolidate Credit Card Debt - American Credit Foundation

4 Ways to Consolidate Credit Card Debt

4 Ways to Consolidate Credit Card Debt

Credit card debt consolidation is the process of combining multiple credit card balances into a single monthly payment. Consolidating your credit card debt can make payments easier and sometimes even cheaper. If you can score a lower interest rate, you’ll be able to reduce interest costs, make your payments more manageable, or shorten the payoff period. There are several ways to accomplish this. This article takes a look at four common methods to consolidate your credit card debts.

  • Open a balance transfer credit card
    Open a new credit card with an introductory 0% annual percentage rate (APR), then move your balances from your other credit card accounts to that one. If you pay off the entire transferred balance before the promotional period ends, you’ll avoid any interest charges on the transferred balance.

    But it’s critical to remember that your introductory zero-interest period is limited. Be sure you understand exactly when the promotional period ends, and plan accordingly so you can pay off your transferred balance on time. If you fail to do this, the remaining balance begins accruing interest at the card’s standard APR. Also, it’s particularly important to make your payments on time because your lender may negate your introductory APR after late (or missed) payments.

  • Apply for a personal loan
    Get a debt consolidation loan to pay off your credit card balances. You’ll then make one payment to the personal loan account rather than a bunch of individual credit card payments throughout the month. If you have good credit, you’ll likely score a lower interest rate on your loan than what your individual credit cards carry.

    Personal loans tend to have a bit more flexibility than credit cards when it comes to repayment terms, but check first whether the lender charges an origination fee (this can be a bit hidden but can add a significant amount to your loan amount). Also, you’ll need to meet certain eligibility requirements. If you’ve experienced financial difficulties in the past, this could be problematic – you might not qualify, or you may only be eligible for an APR comparable to your current credit card rate (which won’t help you save money). 
apply for a home equity loan
  • Apply for a home equity loan or line of credit
    If you own your home, you can use your property as collateral to secure a line of credit to pay off your credit cards. This is also known as a second mortgage because you’re accessing the existing equity in your home (the difference between what you owe on your mortgage and what your home’s value is). The difference is that a home equity loan requires you to pay a single payment that accrues a fixed interest rate, while a line of credit gives you a limit that you can draw against as needed (just like a credit card) and carries a variable interest rate.

    Home equity loans and lines of credit usually have lower interest rates than personal loans, and because they have long repayment windows, you can typically keep your payments manageable. But these arrangements are secured with your home – if you default on repayment, you can lose your home. And if you have no equity in your home, you won’t qualify.

  • Work with a credit counseling organization
    A credit counseling organization provides additional support to help bring your debt under control. They can work with your credit card lenders to set up a debt management plan. Under this type of arrangement, you will make a single monthly payment directly to them; in turn, they divide your payment among your lenders. They may also be able to negotiate lower interest rates or waived fees. The best part is that credit counseling is a holistic approach to organizing your finances that takes a look at your entire financial situation, including current financial challenges, credit issues, debt management, and budgeting. That means your counselor can be a valuable partner in your long-term money management success, not just your credit card debt.

    Before handing over any of your financial details, be sure to research the credit counselor thoroughly to verify that they are legit. Also, ask them what their “rules” are: You might need to pay a counseling fee, or they might prohibit you from using your credit cards while participating in their debt management program.

If you’re feeling overwhelmed by a mountain of credit card bills, it can be tricky to know which path to take to find a solid financial footing. If you’re investigating credit card consolidation but have questions, don’t hesitate to contact American Credit Foundation. You’ll speak with one of our helpful team members, who will provide insightful guidance on moving away from debt – and staying out of it.