Debt Consolidation on Credit Cards should be an option for you when you want to manage multiple debts. This is very important when you find yourself struggling to pay multiple bills and your interest keeps piling up.
Before you decide on consolidation, you need to know if it’s right for you by considering some factors. As you read on, you will learn more about this topic and how to do it right.
Debt Consolidation on Credit Cards
Most People open multiple credit card accounts with the aim of getting multiple rewards especially if they are cash-back cards. Having multiple credit accounts can help you get cash in emergency situations, build credit, and lots more.
But this becomes a drawback when you find it hard to pay the varying balance on the card. If you are in this situation, there are various ways you can use to manage the money you owe. Although this method may differ from person to person, you can choose what’s best for you.
What is Credit Card Consolidation?
You may be wondering what the term “Credit Card Consolidation” means. This is a strategy used by borrowers to manage the debts they owe on multiple credit accounts. When a borrower consolidates his or her debt, all the card balances are combined into a single bill and this makes the debt much easier to manage.
The borrower is required to take a loan with a lower annual percentage rate from a new lender. This loan is used to pay off other debts and with this, only a single monthly payment is made to a new lender. The goal of this method is to reduce the interest applied to multiple card balances making payment much easier.
How Does Credit Card Consolidation Work?
The way credit card debt consolidation works depends on the consolidation option you choose. Generally, involves merging your credit card bills into one monthly payment. After this, a plan is set in place for you to make monthly payments to a new lender.
This is good because it helps you remember and make payments on the due date. Most times, the new debt comes with a lower APR when compared with older multiple debts.
How to Consolidate Credit Card Debt Without Hurting your Credit
Consolidating your credit card debt is a good way to manage your debt effectively. However, it does not mean that you will be debt free automatically. Also, this can affect your credit temporarily. Looking for the best way to consolidate your debt without hurting your credit? Go through this section of the article.
How to Consolidate Debt with Personal Loan
Requesting a personal loan from your bank, credit union or an online lender can help you manage your debt. Personal loans have the advantage of flexible loan terms and a fixed Annual Percentage Rate (APR) that is usually less than your current employee.
When you get approved for a personal loan, you can pay off the debts you owe or pay them down. When this is done, you can use channel the money for your multiple debt payments into your new debt payments monthly.
Before taking out a personal loan, it’s important you consider the terms and conditions of the lender as this might impact you positively or negatively in the long run. Also, consider how long the interest rate will last and if it’s lower than the rate for your card. If it’s higher than the rates you pay on your card, getting a personal loan to consolidate your debt may not be worth it.
Lastly, put into consideration, other fees such as Prepayment penalty and origination fees. Consider if the fees or other insurance will cost you more in the long run.
How to Consolidate Debt with Balance Transfers
Using a Balance Transfer card can help you consolidate your debt. However, this should be done with great care. Most card issuers offer an Introductory APR on balance transfers. This is for a limited time after opening the card account.
When using a balance transfer card, find out how long the intro APR applies to transferred balances. After this, transfer the balances to this card and pay off as much balance as you can before the promotional period ends. Ensure you do not make any new charges on this card account as it can increase the interest charges.
This method of debt consolidation is good because it helps you reduce the interest you owe and the transfer of funds is very easy and quick after you have been approved for the card. The downside to this method is that fees may be charged for balance transfers and the rates may go high after the introductory period. Also, the intro offers are reserved for most borrowers with good or excellent credit.
How to Consolidate Debt with Debt Management Plans
Using a Debt management plan is a good option for borrowers with low credit scores. With this option, you need to contact a Credit counseling agency. This agency will help you find a payment plan that suits your budget.
The agency will also act as a middleman between you and your creditor and will work with them to reduce or totally eliminate your interest charges. During this program, all your card accounts will be frozen and the agency will ensure you stick with the mapped-out plan.
How to Consolidate Debt with Home Equity Loans
You can also choose to take a home equity loan to consolidate your debt. When you apply for a home equity loan, your home is used as collateral. The loan amount you get approved for is determined by the amount of equity you have in your home.
When you are approved for this loan, you can use the money to pay the offer debts. This method however is risky because your home can be foreclosed when you don’t pay it back.
FAQs
If I Consolidate my Credit Cards, Can I Still Use them?
Debt consolidation closes credit card accounts but this depends on the method you choose. If you enroll in a debt management plan or take a debt consolidation loan, your accounts will be closed and with this, you can’t use your credit cards.
Using transfer balance cards, home equity loans or 401K plans does not close your credit card account. Hence, you can use your credit card.
Is Debt Consolidation a Good Idea?
Although debt consolidation is a good step to debt management, it may not be a good idea for you. it is a good idea for you when you qualify for an APR lower than what you’re currently paying on your debt.
It’s also ideal when you struggling with multiple debts and prefer to pay off your debts faster with a single monthly payment.
Do I Need a Good Credit to Consolidate My Debt?
Having good credit is necessary but not mandatory when you want to consolidate your debt. If you want to consolidate your debt with personal loans or balance transfer cards, you will be easily approved with good credit. If you have bad credit, you can still consolidate your debt with a home equity loan or 401K loan.
Can Debt Consolidation Help Me Get Out of Debt Faster?
Yes, debt consolidation is a good way to get out of debt quicker. If you get a loan with a lower APR than your current debt, it can help you pay off what you owe faster.
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