Trying to pay off all of your credit card bills might seem like an uphill battle, particularly if your interest rate is high or you are carrying a huge load on many credit cards. Consolidating credit card debt can be the best option if you are having trouble meeting the minimum monthly payment requirements for your several credit cards.
When you consolidate your debt, all your outstanding financial obligations, such as loan payments and credit card bills, are rolled into one convenient monthly payment. This may be an excellent option if you have many loans or credit card accounts and are looking for a way to simplify or lower your monthly payments. So, how to consolidate credit card debt?
A form of credit card is a balance transfer credit card. This credit card allows you to bring your debt from another card and get an introductory promotion with an annual percentage rate (APR) of 0%. With some credit cards, you could be eligible for up to 21 months of 0% interest on debt transfers, which could save you hundreds or even thousands of dollars throughout the promotion. Furthermore, since you are not paying interest, a greater portion of the money you pay toward your principal sum each month is being applied there. This makes it much simpler for you to eliminate your debt in a short period.
People with excellent credit or better, defined as a FICO Score of 670 or above, are the ones who will benefit the most from using a balance transfer credit card. Because the amount you can transfer will depend on your new card's credit limit, you should have a manageable amount of outstanding debt.
Personal loans may provide a structured repayment plan, which is not available with the vast majority of credit cards, but they do not have an introductory 0% APR. Personal loans do not come with an initial APR of 0%. With stellar credit, you may qualify for a personal loan with a lower interest rate than your credit cards. This is only feasible if you have solid credit.
However, this does not imply that you need credit scores in the excellent range to be approved: Personal loans are made accessible to borrowers with credit scores ranging from fair to excellent. However, you will often need excellent credit or better to acquire an interest rate that is low enough to make the investment worthwhile.
If you cannot be accepted for a balance transfer credit card or if the danger of overspending would be too great if you added another card to your wallet, an unsecured personal loan could be something you want to consider as an alternative. Personal loans are another option, particularly if you have a history of missing minimum payments on your credit cards and are looking for a more organized debt repayment method.
If you own your own house, you can consolidate your credit card debt by taking out HELOC. This choice may still be available even if you have fair credit, defined as a FICO Score of 580 or below. Because your property secures home equity products, there is less risk for the lender, and you may qualify for a significantly lower interest rate than what a personal loan might give.
Because your home secures home equity products, there is less risk for the lender. However, the risk you take is increased when you use your house as collateral since you risk losing it if you are late with too many payments. Lenders will often limit the amount of your equity you may tap into for a loan. Certain lenders may only let you have a total loan-to-value ratio of less than 80 percent for your main mortgage, home equity loan, and home equity line of credit. Depending on your option, you could have to pay fees upfront and regularly.
If your credit is not in good condition, you do not own property, or your home does not have a significant amount of equity, you may want to turn to other assets, such as your retirement plan, to get a loan. Paying down credit card debt may be accomplished by either taking money out of your 401(k) plan in the form of a withdrawal or taking out a loan against it. If you are not cautious, though, things may get more difficult and expensive for you.
