5 Strategies to Consolidate Credit Card Debt
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5 Methods to consolidate Credit Card Debt
A consolidation plan for your credit card debt may be beneficial if the new debt has an APR lower than your credit cards.
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Credit card consolidating debt is an technique that takes multiple credit card balances and blends them into one monthly payment.
is ideal if your new debt is at an annual percentage rate that is lower than the credit cards you use. This could lower interest costs as well as make the payments easier to manage or reduce the time to pay off.
The best way to consolidate depends on the amount of debt you have, your credit score and other aspects.
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These are the five most efficient ways to pay off credit card debt:
Refinance using the credit card that allows balance transfers.
Consolidate with a personal loan.
Tap home equity.
Consider 401(k) saving.
Start a debt management plan.
1. Balance transfer card
Pros :
APR for the first month is 0%.
A year or more to pay off debt without the cost of.
Cons:
Good to excellent credit is required to be able to get the loan.
Usually carries an amount for balance transfer.
Higher APR starts following the initial period.
Also called credit card refinancing, this option is a way to transfer debt from a credit card to a credit card that has no interest charges during a promotional time, typically between 12 and 21 months. You’ll require good to excellent credit (690 credit score or better) to be eligible for many balance transfer credit cards.
A credit card that is a good balance transfer option doesn’t charge an annual fee, but some issuers charge a one-time balance transfer fee of 3 to 5percent of the amount transferred. Before you choose the right card, consider whether the interest savings you make over time will wipe out any cost associated with the fees.
Try to pay the balance down completely before the 0% initial APR period is over. Any balance left beyond that period will be subject to the regular interest rate.
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2. Credit card consolidation loan
Pros:
Fixed interest rate implies that your monthly installment won’t change.
Low APRs are available for people with good to excellent credit.
Direct payment to creditors offered by certain lenders.
Cons:
Hard to get a low rate for bad credit.
Some loans have an origination charge.
Membership in credit unions is required to apply.
You can take advantage of an unsecure personal loan from a credit union, bank and online lenders to pay off credit card debt or other kinds of debt. The ideal situation is that the loan will provide you with a lower APR of your credit card.
are not-for-profit lenders that may offer their members more flexible loan conditions and lower costs than lenders online, particularly for borrowers who have poor or fair credit (689 credit score or lower). The maximum APR charged at federal credit unions is 18%..
Bank loans provide competitive APRs for good-credit borrowers, and the benefits offered to existing customers of banks may include higher loan amount and rate discounts.
Most online lenders let you pre-qualify without impacting your credit score, but this is not as common between credit unions and banks. Pre-qualifying lets you get a preview of the rate, loan amount and term you could get when you apply for the loan.
Look for lenders that provide special services to help you consolidate debt. Some lenders, for instance, will discount the rate for a debt consolidation loan or even transfer your loan funds directly to your creditors, making the process.
Are you not sure if a private loan is the best option? Use our to enter all of your debts into one place, see the average rates from lenders, and calculate your savings.
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3. Home equity loan also known as line of credit
Pros:
In general, lower interest rates that personal loans.
Does not need an excellent credit score to be able to apply.
The longer repayment time keeps the cost less.
Cons:
You need equity in your home in order to qualify to be eligible, and a home valuation is usually required.
Secured with your home that you could lose in case you do not pay.
If you’re homeowner you could be able take out a loan or credit line on the equity of your house and use this to repay credit cards or other debts.
A is a lump-sum loan with an interest rate that is fixed A line of credit is similar to credit cards with an interest rate that is variable.
A often requires interest-only payments during the draw time, which typically lasts for 10 years. You’ll need to pay greater than the minimal payment in order to lower the principal and make an impact on the total debt over this period.
Since the loans are secured by your home, you’re likely to get lower rates than you’d find on a personal loan or credit card for balance transfer. However, you may be evicted from your house if you fail to pay your bills on time.
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4. 401(k) loan
Pros:
Lower rate of interest than non-secured loans.
There is no impact to your credit rating.
Cons:
It could reduce the retirement savings of your.
A large penalty and charges in the event that you cannot repay.
If you quit or lose or quit your position, you could need to repay your loan.
If you’re a participant in an employer-sponsored retirement plan, like the 401(k) plan is not advised to take out a loan from it, since this could significantly affect your retirement.
Consider it only after you’ve removed balance transfer cards as well as other kinds of loans.
One benefit is this loan won’t show up on your credit report, meaning there’s no impact to your score. However, the disadvantages are substantial: If you can’t repay, you’ll owe a hefty penalty plus taxes on the unpaid balance, and you may be left facing debts that are more.
As well, 401(k) loans typically will be due within five years, except if you are fired or terminate your employment and then due on tax day of the next year.
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5. Debt management plan
Pros:
Payable on a fixed monthly basis.
May cut the interest rate in half.
It won’t affect your credit score.
Cons:
Monthly and startup fees are typical.
It can take between three and five years to pay off your credit card.
combine several debts into a single monthly payment with a lower interest rate. This option is ideal for people who struggle to pay off credit card debt but don’t qualify for other options due to a poor credit score.
In contrast to other credit card consolidation options, debt management programs do not affect the credit rating of your. If your debt is more that 40% of earnings and cannot be paid off within five years, then may be a better option.
It is possible to find the debt management program through a non-profit .
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Commonly asked questions What does debt consolidation mean?
Debt consolidation combines multiple debts, including loans or credit cards with high rates of interest loans to make a single payment.
Do I need to consolidate my to pay off my debt?
Debt consolidation could be a smart idea if you can get lower rates of interest than the current rate on your debts. This would reduce interest costs as well as lower the monthly installment or help you pay off debt more quickly.
What effect will consolidating debt have on my credit?
Your credit score may briefly drop when a lender or card issuer does a hard credit inquiry. But if you pay on time and stay out from debt for the future the effect may be positive.
What is the term «debt consolidation?
Debt consolidation combines several debts, such as high-interest credit cards or loans in one payment.
Should I consolidate debt?
Debt consolidation could be a good idea if you can get a lower interest rate than the current rate for your debts. This would reduce interest costs and lower your monthly payments or assist in paying off debts faster.
How will consolidating debt affect my credit?
Your credit score could temporarily dip when a lender or card issuer does an inquiry into your credit. However, if you pay your bills on time and stay out of financial debts in the future it could be positive.
The authors’ bios: Steve Nicastro is a former NerdWallet expert in personal loans and small-business loans. His work has been featured by The New York Times and MarketWatch.
Jackie Veling covers personal loans for NerdWallet.
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