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credit card consolidation
17 Jul 2018

Credit Card Consolidation: 6 Strategies

If you have multiple credit cards that need to be paid off, you’re probably really frustrated by the fact that you’re paying out multiple times each billing period. Your interest keeps compounding in multiple places, and the stress keeps coming.

When you have multiple credit cards to pay off, it can help to try and consolidate that debt into one place somehow.

Credit card consolidation can serve two important purposes. First, it simplifies your payments so that you only have to deal with one lender. Second, in a perfect world, your interest rate would be lower with a loan taken out to pay off your credit card debts.

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6 Strategies for Credit Card Consolidation

Credit card consolidation can be a great option, but you need to understand what you’re getting into. It would be unwise to take the first opportunity presented to you without carefully going over your options.

There are a few things you need to do before you begin thinking about ways to consolidate. First, figure out how much you have on your balance. If you’re having trouble calculating all of your balances, there are a number of online resources that can help you.

Next, figure out how much you can afford to pay monthly. You’ll want to pay off your debts quickly without putting yourself in a situation which will require you to take out another credit card or get another loan.

With those things in mind, take a look at these 6 ways you can consolidate your debt.

1. Get a Personal Loan

A personal loan could come from nearly any lender. A bank or credit union would be safe bets to explore. These loans do have the chance to have lower interest rates than your credit cards.

Credit unions may be your best bet, with generally low interest rates and benefits for those who have decent credit.

That said, online lenders may be your best bet if you have poor credit. Many online lenders will give you a decent interest rate without too much exploration into your credit score.

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2. Home Equity Loan

If you have a home or something of similar value, you can consider taking out a line of credit on its equity. A line of credit and home equity loan are different. A line of credit is similar to a credit card, with variable rates that adjust based on your balance.

A home equity loan is one amount that has a fixed rate of interest. These loans must be carefully thought out because they can exist for a period of up to 20 years. Additionally, your home lies in the balance so you want to make sure that you understand the complications and can afford to pay your monthly balances.

3. Balance Transfer Credit Card

Balance transfer cards often have conditions that allow for 0% interest for a fixed amount of time after the card is registered. This means that you can use the card to consolidate your debt and pay back your balance with no interest.

This is a great option if you have the means to do some serious damage to your balance while the rate is 0%. The rate only stays low for a fixed amount of time, though, then kicks back up.

There’s also a transfer fee that applies in most cases. This fee usually sits around 3 to 5 percent of the balance that you’re transferring over. These cards typically go to those with excellent credit, though, so you may need to take some time to improve your score before you apply for one.

4. Talk with a Friend or Family Member

This one will require a healthy relationship and a dedicated promise that you will pay the money back. Borrowing from someone close to you is a way to take care of your debt without any interest accruing in any way.

At the same time, financial agreements can put a huge strain on relationships. You’ll want to make sure that the agreement between you and your loved one is written out, firmly agreed upon, and free of any coercion.

By that, we mean that you shouldn’t ask for a large sum of money to “even the score” or make amends with someone. The agreement should be entirely at will by both parties.

5. 401k or IRA

If you’ve put money away into some kind of retirement fund there’s a chance that you can access them to pay off your debt. There’s a chance that you would be subject to a fee for early withdrawal, but that will depend on the specifications of your fund.

This one may seem like a good idea now, but it’s important to consider the fact that you’re dipping into your nest egg for retirement. It would be wise to explore your other options before taking from your 401k, especially if your debts are considerable.

6. Coordinate with a Credit Counseling Organization

These are organizations that help you to try and tackle your credit on your own. Instead of taking out additional loans, these are people who can lay out a path for you to handle your credit yourself.

Additionally, lenders will not consider you delinquent if you’re working with a credit counseling service. Finding a debt management plan shows that you are dedicated to diminishing your balance and taking care of your debts.

There are costs associated with working with an organization, but they are tiny compared to the cost of continued interest accumulating on your balance. There are a lot of credit counseling agencies out there, so make sure to do your research and find one that works best for you.

Consider Speaking with a Professional

If you’re drowning in debt and finding that credit card consolidation seems out of reach, talk to a professional who can help you through the situation.

There are agencies out there that can help you get loans and apply for credit cards. Many of the options listed above can get difficult when you’re faced with numerous options. If you think that you could benefit from a talk with someone in personal finance, we are here to help.