Consolidating Credit Card Debt 3 Ways

Consolidating Credit Card Debt - Learn 3 Ways

Consolidating Credit Card Debt

Consolidating credit card debt requires a lot of thought before you do it. There are several things to consider and there are several ways you can go about consolidating credit card debt. You want to make sure that you’re making your situation better and not worse.

What Consolidating Credit Card Debt Means

When you consolidate your debt, you take all of your payments and put them into one payment. This can be loan payments or credit card payments. If you have multiple credit card payments, you can consolidate them all into one payment. This doesn’t mean that your debt goes away. You might also end up paying more on the consolidated payment than you would have with the individual ones. It does simplify the payment process though.

Before Consolidating Credit Card Debt, Try These Steps

Since consolidation involves taking out a loan, there are a few things to consider. The whole point of a consolidation loan it to get yourself out of debt. Everyone wants to get out of credit debt fast. You can only do this quicker if you consider these points:

  • Budget: Make a monthly budget and track everything you spend. There are apps you can learn to use that make it very easy to budget. Learn how Mint works to help people budget either by using their desktop or the app. This will help you understand where your money goes. It’ll also help you trim away excess expenses so you can stay out of debt.
  • Lower Payments: Contact your lenders and see if they’ll lower your monthly payments. As long as you’ve not defaulted, most will work with you. They may waive fees, change your due date to match your paydays or reduce your interest rates. If they won’t consider consolidating credit card debt.
  • Spending: Take a long look at your spending. You have to understand how you got into debt in the first place. If you routinely live outside your financial means, this consolidation loan won’t help you much. You’ll most likely end up right back where you started within a few months. It is important to recognize the warning signs of credit card debt.

Additional Things to Consider Before Consolidating Credit Card Debt

  • Make sure you can afford your payment. A lot of people fall behind with their consolidation loan payments because they don’t modify their spending.
  • Your debt consolidation loan can cost you more in fees, interest, and miscellaneous costs than you’d spend paying your original payments.
  • If you have a lower credit score, you might not get lower interest rates on your debt consolidation loan, balance transfer credit cards, or home equity loan.
  • Using a nonprofit credit counselor can help you understand your debt and help you choose the best debt consolidation option for your lifestyle.
  • Debt settlement companies can charge upfront fees before they help settle your debts.

Different Ways to Consolidate Your Debt

There are three primary ways to consolidate your debt. Which one you use depends on your situation. One that works for someone else may not work well for you.

1. Debt Consolidation Loan

Consider consolidating credit card debt with a debt consolidation loan. You can get one from credit unions, banks, and installment loan lenders. You combine your monthly payments into one simple loan payment. This way, you’ll only have to remember to make this one payment a month. You may also get a lower interest rate than you currently pay on your other debt. You do want to make sure that the interest rate isn’t just an introductory offer. Ideally, the lower interest rate should last the life of the loan.
When you look into a debt consolidation loan, look at the terms and conditions. You want to look for any additional costs or fees you wouldn’t have with your current payments. Make sure that you’re not paying a lot more overall. Lower monthly payments usually mean you pay more in interest fees. The goal is to get out of debt, not pay more in.
  • Debt Consolidation Loan Tip: It’s a good idea to compare various loans before you pick one. Check the interest rates, fees, and terms. This will help you pick a loan that fits your budget. It’ll also help you pay the least amount of money over time.

2. Balance Transfer Credit Cards

A lot of lenders offer balance transfer credit cards with good introductory offers. These introductory offers are usually a zero percent interest rate for a set amount of months. This means that you’ll only pay on the amount you transfer over and no additional interest rates. This introductory offer typically lasts between 12 and 18 months. It’s also possible to find a balance transfer card without that doesn’t have a balance transfer fee.

When the introductory offer ends, the interest rate goes back to the regular rate. If you’re two months late on a payment, the lender can start charging interest. It doesn’t matter if you’re still in the introductory period or not. Also, if you make purchases on this card, you’ll pay interest on them right away. You’ll continue to pay interest until you pay the balance off.

  • Balance Transfer Card Tip: Don’t make any purchases on your new balance transfer card. Use it to pay off your transferred balances, and don’t use it for anything else. Not only will this help you pay your balances off quicker, but it’ll also stop you from paying interest. Review the Credit Fast picks for the Best Balance Transfer Credit Cards.

3. Home Equity Loan

Consolidating credit card debt with a home equity loan can be risky, but it’s an option. You take out a loan for the amount of your debt against your home’s equity. You use the funds from this loan to pay off your debt. Now you have to pay back the home equity loan. If you don’t or can’t pay back the home equity loan, you could lose your home. The bank or lender could foreclose on it, no matter how small the home equity loan is.

Usually, this type of loan has a lower interest rate. You do want to make sure that you won’t pay closing costs with this type of loan. These costs can easily amount to thousands of extra dollars. A home equity loan can also make it harder for you to sell or refinance your home later on. If your home’s value falls, you can find yourself underwater. This means that you’ll owe more than your home is worth.

  • Home Equity Loan Tip: Using a home equity loan should be a last resort for consolidating credit card debt. It’s very risky, and you don’t want to lose your home to foreclosure. If you do take out a home equity loan, make every payment on time. It’s also a good idea to try and pay a little more than the payment each month.

Choose the Right Way With Consolidating Credit Card Debt

No matter which of the 3 ways you choose for consolidating credit card debt, make sure it works for your situation. You don’t want to fall farther behind and make your situation worse. These three different debt consolidation ideas allow you to compare them easily. Use your debt consolidation loan responsibly, and you can be on your way to no debt.

Monica Kowollik

Director at CreditFast.com
Monica has covered credit card and personal finance news for over 15 years. From an early age, she developed an interest in financial literacy and saving money. Monica hopes to help others to improve their personal finances one article at a time.

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