If you’re concerned that your credit card debt is out of control, now is an excellent moment to devise a plan to reduce it swiftly. Debt consolidation is one of several alternatives available to you, and if your credit score is good, it may be able to save you money on interest.
As you seek to become debt-free, consolidating credit card debt could help you simplify and minimize your monthly payments.
When you consolidate credit card debt, you combine various credit card balances into a single monthly payment at a lower interest rate than what you’re paying now.
Keep in mind that debt consolidation may appear to be reasonable and sensible at first glance – and it may be for some – but because it necessitates more borrowing, it has the potential to result in even more debt.
The true key to debt consolidation is to address the reason you needed to borrow in the first place and to make sure you’re in a position to avoid borrowing in the future otherwise, you can find yourself in the same situation as before, with the loan on top.
To begin, you might be able to reduce your monthly payments. How? By using a loan or credit card with a lower interest rate than your current accounts, you can consolidate your debts. Some credit cards even offer 0% introductory rates, to begin with, but these rates may only be available for a limited time.
Consolidating credit card debt could also make the payment procedure easier. It may be practical to make a single payment each month and track your progress as you pay off your debt if you bundle your balances together.
Credit card debt consolidation, however, will not reduce your debt, according to the Consumer Financial Protection Bureau (CFPB). There’s also a potential you’ll pay more in the end due to fees, interest, and other factors.
The main goal of debt consolidation is to pay off your debts as quickly as possible.
1. Transfers of Funds
A balance transfer can be used to combine numerous credit card balances into a single account. Your debt from other cards is transferred to the balance transfer card in part or in full. After that, you’ll make monthly payments to the new card.
Furthermore, because you aren’t paying interest, more of your monthly income goes toward your main balance, making it easier to pay off your debt quickly.
People with excellent credit or better—a FICO score of 670 or higher—should use a debt transfer credit card. It’s also preferable if you don’t have a lot of credit card debt because the amount you can transfer is limited by the credit limit on your new card.
It’s also worth contemplating if you’re interested in this alternative.
How long will introductory interest rates apply to transferred balances and whether the rate will also apply to new charges?
If you don’t pay off your debt, your interest rate could change over time and it could cost you a lot of money. If there will be any transfer fees applied to your transferred balance. What impact a balance transfer might have on your credit.
Personal loans do not have a zero percent introductory APR, but they can provide a structured repayment plan, which is not available with most credit cards. If your credit is in good standing, you may be able to get a personal loan with a cheaper interest rate than your credit cards.
That doesn’t imply you’ll need perfect credit to get approved: personal loans are available to people with all types of credit. However, you’ll need excellent credit or better to get a low enough interest rate to make it worthwhile.
If you can’t get approved for a debt transfer credit card or if the risk of overspending is too high if you add another card to your wallet, a personal loan might be worth considering. If you’ve been trapped in the minimum credit card payment trap in the past and want a structured repayment plan, a personal loan may be the way to go.
If you’re approved for a personal loan, you might use the money to pay off or reduce your credit card debt. The money you used to pay off your credit cards on a regular basis would now be utilized to pay off your personal loan.
3. Seek the help of agencies that provide credit counseling
Credit counseling is another option. Credit counselors have been trained to help customers comprehend credit card debt and how to manage it.
The National Foundation for Credit Counseling and the Financial Counseling Association of America can assist you in finding credit counselors. The Consumer Financial Protection Bureau recommends both.
Once you’ve found a business, the Consumer Financial Protection Bureau (CFPB) gives a list of questions to ask regarding credit counseling. In general, the organization recommends finding a credit counselor who can provide a variety of services in person, over the phone, or online.
Credit counseling firms offer a debt management plan, which is a structured repayment schedule. If you have a lot of credit card debt and your credit isn’t in good enough shape to seek other consolidation options, this route can be worth it.
Above all, keep your eye on the goal
Debt consolidation can take numerous forms, and some may be better for your situation than others.
Consolidating credit card debt could help you get back on track if paying your credit card bills is a struggle. Your credit card provider may be able to help you stay on track or get back on track by working with you.
The most important thing is that you continue to pay down your debt. The sooner you pay off your credit card debt, the more cash flow you’ll have to spend as you like.