If you’re up to your eyeballs in credit card debt and drowning in the chaos of juggling multiple payments and due dates, credit card consolidation might be a good solution for getting you back on track.
How Credit Card Consolidation Works
Just like it sounds, credit card consolidation takes all of your credit card debt and combines it into one lower-interest loan. That means you only have one bill, one monthly payment, and the security of knowing exactly what you owe and what kind of progress you’re making.
Your Options
Balance Transfers
Many consumers like to use balance transfers to bring all their debt onto one credit card. This can be tricky, though. You need to have strong enough credit to open up a new credit card account, and you want a new account that has a lower interest rate than what you’re currently paying. There are a lot of alternatives out there that you can apply for. You can often get a new card with a zero interest promotion for a certain period of time, but be aware that there are usually fees associated with transferring a balance from another credit card, and you might be limited on how much debt you can move to the account. Do your homework and make sure you understand what the new annual percentage rate (APR) will be once your promotional period ends.
Personal Loans
If you owe more than $12,250 of credit card debt, consider a personal loan from your bank or another financial institution. There are some advantages to this option, like higher credit lines and low interest rates. Also, personal loans are not revolving loans, so they won’t have an impact on your debt-to-credit ratio, which is good for your credit score. Your credit history will dictate whether this is an option for you. If you decide to go this route, make sure the interest rate is lower than your existing credit cards, and find out if there is a prepayment fee.
Home Equity Line of Credit
If you already have a home equity line of credit, using that to consolidate your credit card debt may be an option, but it’s not recommended. Every time you borrow against the equity in your house, you could potentially be putting your home at risk. Your house is the bank’s collateral, unlike credit card debt, which has no collateral. It’s not wise to get a new home equity loan to pay off your credit cards, simply because it comes with a lot of fees - home appraisal, origination fees, and other hidden costs.
Take Control of Your Credit Card Debt
Just by reading this, you’ve taken an important first step toward getting in control of your credit card debt. There are many nonprofit resources available to help consumers who are struggling, and they can give you advice for your individual situation. Once you consolidate your debt onto a vehicle with lower interest rates, you can get laser-focused on paying it off.