Should You Consolidate Your Credit Cards? Your Guide to Credit Card Consolidation
Credit card debt can stick with you for years. If you find yourself in deep credit card debt, there are options, like credit card consolidation. Learn more here
$6,375 is the amount of credit card debt the average American carries. This stat is up 3% over last year.
Feeling the crunch and stress of credit card debt can keep you up at night and cause relationship problems.
Instead of continuing to pay high-interest rate debt for years to come many Americans turn to credit card consolidation. Many people see getting a loan to pay of credit card debt as the only way out of a slippery situation.
Continue reading this article to learn what you need to know before you consolidate your credit cards.
What You Need to Know About Credit Card Consolidation
As you learn more about consolidating your credit cards, you are likely to see there is more than one way to get the job done. While we love to have options, it does make things more difficult when you have to make a decision. Here are four ways you can consolidate your credit card debt.
1. Personal Loans
An unsecured personal loan is a popular way to pay off credit cards and other debts. Many people apply for personal loans to get a lower interest rate on their debt instead of paying high rates from credit cards.
As you are applying for personal loans, make sure to check and see if the percentage rate is going to be lower than what you are currently paying. Depending on which loan company you use, the interest rate for a personal loan could be as high as credit card interest rates or even higher.
If you apply for a personal loan online, the best rates will go to those that have the best credit scores. If your credit score is low, you can save money on your interest rate even if you increase your credit score minimally.
Some companies that offer personal loans will be more likely to approve your request if they send the money to your debtors.
2. 0% Balance Transfer Cards
For people that have excellent credit scores, offers of introductory 0% APR credit cards are not uncommon. This introductory rate is no less than 6 months and sometimes up to 18 months.
These cards will allow you to transfer your debt from your other credit cards to gain your business. While you won’t have to pay interest for the 0% introductory period, the balance that is still on the card at the end of the period will be subject to interest at the regular rate.
Pay attention to terms of the balance transfer as well. Usually, the 0% APR introductory rates come along with around a 3% fee for the balance transfer.
If you have a plan in place to pay off the balance before the introductory rate is up, this can be a great option for consolidating and paying off your credit card debt. If you don’t have a plan in place, you are likely to saddle yourself with interest either way.
3. Home Equity Loan or Line of Credit
If you own your home, you can take out a loan or line of credit using the equity in your home. Home equity loans are lump sum loans with a fixed interest rate. A loan of credit is like a credit card with a variable interest rate.
You can use the money to pay off your credit cards and get a lower rate of interest since secured loans generally have lower interest rates than unsecured loans.
Failing to keep up with payments means that you could lose your home. Unless you have a specific and concrete plan in place, getting a line of credit on your home may not be the best idea.
4. 401(k) Loans
While some people do decide to take a loan from their employer-sponsored retirement account, this is not a wise idea. Taking a loan against this account can cause major problems in your retirement. If you don’t want to use the options about, this may be the only thing left for you to do.
There is one benefit to this loan, and that is that it won’t show on your credit report. This small benefit isn’t enough to offset the factor that if you don’t repay the debt, you will owe a big penalty plus taxes on the balance you haven’t paid.
The typical due period of 401(k) loans is five years. If you are no longer at your place of work, the loan is due in 60 days.
Benefits of Paying off Credit Card Debt
Paying off your credit card debt before interest accrues means you won’t pay any interest on the money you used for that period. If you carry a balance and pay more than the minimum payment, that will decrease the amount of interest you pay.
Not only will you pay less interest when you pay down your credit cards but you will also enjoy a higher credit score. When you aren’t carrying a high balance on your credit cards, your use will be low which increases your credit score number.
When you have a higher credit score, you are more likely to get approved for loans that are low interest. Having a high credit score gives you more of a chance to get a loan to consolidate the rest of your debt too if that is something you want to do.
Even small decreases in the percentage of interest you pay can make a big difference in your monthly payments. The overall interest that you pay will also decrease if you secure a lower interest rate percentage on your loans.
When you pay your credit card early you’ll have the amount that you paid available on your credit card again. If you get rewards when you use your credit card, then you want to have availability so you can spend and earn more rewards.
Create a Lifestyle You Love Using a Budget You Can Handle
Every year more people decide to get out of debt and to go for a freedom lifestyle. Our site helps you understand money and credit card consolidation so you can start living your best life now. Check out another great article like our article on how to make fast internet money.