How To Consolidate Credit Card Debt
How to consolidate credit card debt requires taking multiple credit card debts and combining them into one larger debt. Any loan that you take in order to pay off multiple debts can technically be considered a debt consolidation loan. People primarily consolidate debt in order to achieve a lower interest rate, lower payments or both. Debt consolidation can lower your payments by stretching out the amount of time you take to pay off the debt, or simply by charging you less interest on the money you owe.
There are several different ways to consolidate credit card debt, depending on your personal situation. You can:
- Take a home equity loan or second mortgage. Use the proceeds to pay off your credit cards. If you select this option, you are consolidating credit card debt into your mortgage debt. This can result in the lowest possible interest rate over the long term, but you may be paying back the debt for a long time depending on the length of the term of your mortgage. You also put your home at risk, because if you can't pay the second mortgage bills, your mortgage lender could foreclose. This means you effectively are changing unsecured credit card debt into secured debt.
- Get a personal loan: This is usually only an option of you have decent to good credit. You can get a loan from a bank or credit union. Your interest rate will be based on your credit score, and the monthly payments will be determined by the amount you borrow and by the length of the term of your loan. The interest rate on a personal loan is usually lower than the interest on a credit card, but higher than the interest rate on a mortgage.
- Take a balance transfer: A balance transfer is an offer by a credit card company that allows you to transfer the balance from multiple credit cards to a new account. There is a fee (usually 3 percent of the total amount transferred) but often these offers provide a special promotional rate to entice customers to transfer (for example, they may offer you 0 percent for 12 months). This can be a great way to temporarily lower your interest rate, as well as to roll all your debt onto one card.
Consolidating debt can be a great way to simplify your live and avoid the hassle of multiple monthly payments. Explore your options for consolidation to find out which is most advantageous in your situation.