7 Ways You Can Consolidate Credit Card Debt

Credit cards offer a way to earn cash back or travel miles. They are a great way to build credit and lay the foundation for future purchases, such as a car, or a home. Sometimes, life happens and you find yourself stuck with multiple credit accounts with varying balances. While it may seem overwhelming to plan and execute a strategy to reduce these debts, it’s possible.

Credit card debt consolidating is a strategy that combines multiple credit cards into one. This simplifies the process as there is only one monthly installment and due date. These consolidation strategies usually come with a lower interest rate, which can save you money and help you pay off the balance faster. Find out more about https://dedebt.com/

Many methods can be used to consolidate or pay off debts. However, each person’s best option may vary. We’ll be looking at some different approaches to consolidating debts.

Personal Loans

Consolidating your credit card debt is easy. Simply contact your local bank or credit union, and ask for a debt consolidation loan. The application process can often be completed online or over-the-phone. These loans offer flexible terms (typically between 12 and 60 months) as well as a consistent monthly payment. This is a great way to help budget. Some financial institutions will direct pay creditors as an added bonus.

Keep in mind that your credit score and the term of your loan will impact your interest rates. Origination fees are another cost that may apply to your loan.

Commonly, the four most important metrics in lending include income, credit scores, total assets, and total debts. Upstart, an online lender that offers loan approvals, includes some non-traditional metrics. In order to be approved, a lender may not have the right metrics. These include length at present residence, education level, job history, and other factors. This is especially helpful for new borrowers, who may have less credit history.

There are some downsides to this loan, including potential origination fees. Also, there is a smaller selection of terms available. Rates can be comparable for those who have good credit, but they may be more if you have poor credit.

Debt Consolidation programs

A debt consolidation service is one where you combine your credit cards into one payment. From there, you would typically make one payment to the program. The program would then forward your payment to creditors. This is not the same thing as a debt consolidation loans, which are loans that consolidate your existing debts. While your existing debts may still exist, they are usually easier to manage.

Your monthly payment should be less than the total amount of all your payments. This means that you will pay less to your debts. Consolidating debt with creditors can reduce interest rates and eliminate fees such late fees. However, neither is promised. Some debt consolidation programs may require you to close certain or all of your card accounts.

Although the National Foundation for Credit Counseling may seem like a great place for nonprofit options, other options are available. Although all programs aim to make a workable payment plan, there are some that have different setup fees or monthly fees. When deciding who to choose, this should be taken into consideration.

Credit Cards – 0% APR

Some credit cards offer 0% balance transfer APR for a short period of time. These cards may still have balance transfer fees (typically between 3% and 5% of the total balance to be consolidated), but they often offer 0% introductory rates for 12 to 18 months, so you don’t need to worry about the balance accruing interest.

Citi(r), Diamond Preferred(r), Card: This card is an excellent choice for anyone considering going this route. The account opens with a respectable, 0% intro interest for 18-months on purchases. You also get 0% intro interest for 18-months on eligible balance transfers. Your creditworthiness will determine the variable APR. The balance transfer fee for each transfer is $5 or 3%, depending on how much you transfer. Citi will limit the amount of credit available to them and they will only allow 18 months for interest to begin to accrue. Spreading the money over a longer duration may be more beneficial to some.

Remember that credit scores should be excellent to excellent if you want to apply for a credit card with 0% interest.

HELOC, Second Mortgage

A way to consolidate debts is to use your home if your home has appreciated in price over time or if the balance has been paid down. In order to repay other debts, you could use your home’s equity as collateral by taking out a second loan or using a HELOC (home equity line of credit) to finance it.

An underlying asset is required to finance these loans. The interest rate can be lower than personal loans. This allows you to pay less monthly and helps you pay down your balance more quickly. If you choose this route, there may be additional mortgage-related fees. You should contact your lender immediately.

You can get a loan from 401(k).

In most cases, we don’t recommend drawing money from retirement savings except in the most dire circumstances. The best choice for debt consolidation is not a loan from a 401(k), but it does have some benefits.

The best way to lower your rate of interest than a personal loan is to take out a loan against an employer-sponsored 401k. In general, this strategy can improve your credit rating. The loan can be taken out of your own 401k without a credit check and shouldn’t impact your credit score. Your credit rating will improve if you can pay off any debts with the loan.

You should understand that borrowing from your 401K reduces your retirement funds and that heavy fees may apply if you are unable to repay the loan. Your payback may be faster if you lose or change your job.

Peer-to-Peer Lending

Peer-to–peer lending is another method to obtain funds for consolidation loans. Peerform, a marketplace loan platform, connects investors and lenders looking for loans. The goal of the platform is to create a win/win situation. An investor who seeks a steady, profitable return on investment.

Equity in Owned Motor Vehicles

This is a great option if you have a vehicle that has been paid off, or has a low loan balance in relation to its value. By using your vehicle to secure a loan, you can pay off your other creditors. In this scenario, your auto loan rate will be much lower than an unsolicited personal loan.

There would be a limit on the amount of the loan, which could lead to the loan being limited to the vehicle’s value. In order to finance an auto loan, lenders will require complete auto insurance coverage. This can increase monthly expenses if you are not normally carrying PLPD. This is a great way of leveraging an asset to receive a lower interest rate.

Bottom Line

Credit cards with their associated rewards programs and points can be a great way to save up and put a little bit more back in your pocket. The downside is that credit card debt can make it difficult to get rid of. It can also negate the cash back, points and miles you earn. Finding ways to reduce your debt quickly and within your financial means is a great way to achieve financial freedom.

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