Have you been spending nights up? Do you have a constant feeling in the pit of your stomach? Do you have fear of falling into debt? If you have credit card debt, you may have nightmares of going into the mouth of painful death.
Credit card debt consolidation can be an option to get out of this quagmire. Consolidating means taking out a new loan to repay the existing debt. This seems to be a better option because:
- You will pay off the debt at a lower interest rate than a higher interest rate.
- You will pay it down in fixed monthly installments.
- You will make payments to one lender instead of multiple lenders.
How can consolidation benefit you?
People consider a debt consolidation loan because it allows you to pay off the debt in simpler repayments. Since payments are made in fixed installments, there are lower chances of due dates slipping through the cracks.
Consolidation loans can help you avail of lower interest rates depending on your current deal and credit rating.
Ways to consolidate your credit card debt
The following are the key factors you need to consider before applying for a consolidation debt.
- Do your homework
First, you need to find out the amount of credit card debt, the balance in each credit card, interest rates, the repayment term, the monthly payment, and above all your eligibility criteria.
Note that online eligibility checkers can help you know the chances of your application being accepted and the type of credit card that suits your needs. Make sure that the deal you choose suits your budget.
- 0% balance transfer credit card
A balance transfer credit card is one of the most common methods of consolidating credit card. It means transferring balances to your new account. Your lender will offer introductory interest rates as low as 0% APR for a certain period.
Remember that you have to pay off the debt within that period. Otherwise, you will end up paying more than the current interest rate. The introductory period varies from six months to 18 months.
- Balance transfer credit cards carry a huge risk for lenders to recoup their money, this is why they provide such offers only to borrowers with at least good credit history.
- Your lender will charge a balance transfer fee because you will pay off the entire debt with 0% APR.
Caution: Consider your affordability. Make sure that monthly installments will not keep you from meeting regular expenses. Otherwise, you will rack up your debts.
- Apply for a personal loan
If you are not eligible for a debt consolidation loan, you can take out personal loans. Consolidating your credit card debt with a personal loan can offer you various benefits, for instance:
- Personal loans carry much lower interest rates than credit cards.
- You can apply for personal loans even if your credit rating is bad. However, interest rates will be a bit higher, yet lower than credit card debt.
Some direct lenders like Easy Cheap Loan provide consolidation facilities to bad credit borrowers too.
- Look out for a debt management program
Debt management companies help people struggling with debt payments by creating a repayment plan. They will review your financial condition and then guide you about spending, budgeting, and other financial concerns.
One of the significant roles of such companies is to negotiate interest rates with lenders on your behalf and request waiving fees. You will make the payment to a debt management company that will further pay back money to lenders after deducting fees.
Other things to consider
Even though consolidation can help you further sinking into debt, it does not mean that it is a permanent solution to your debt problems.
You need to find out the root cause of your debt. If you do not have a repayment strategy to pay off your credit card bills, you will end up with more debt. Try to cut back on discretionary expenses and get a side gig to avoid falling into debt.
Consolidating your credit card can be an effective way to get your finances in control, but you need to be careful with your affordability. Sometimes consolidation schemes seem very attractive, but once you sign it, it eventually turns out as a swindle. Make sure that you talk to a reliable lender. Compare interest rates and the repayment length before grabbing any deal.