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Discover the 5 Best Ways to Consolidate Credit Card Debt

Last updated 12/17/2019 by

Allison Martin
Are you drowning in credit card debt? Even if you’re making the minimum payments each month, chances are the balances aren’t decreasing as fast as you’d like them to. And if money’s tight, it may be tough to ramp up debt-payoff efforts.
So, you decide to look into consolidating your credit card debt. But is it a good idea? And if so, which consolidation option is best?

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Why and How Can Credit Card Debt Be Damaging?

The average American household carries a balance of $15,000 over 5 different credit cards. Carrying a balance on your credit cards means you are being charged interest. Twelve percent of card owners (source) can only afford to make the minimum payment on their credit cards each month, which can lead to more and more debt as the months go by.
You may face penalties if you cannot make your minimum credit card payment each month or if you charge over your credit limit. Many creditors will also increase your annual percentage rate if you miss a payment. This can cause serious financial difficulties if you are carrying a large balance. All these factors make carrying credit card debt risky business.
12 percent of card owners can only afford to make minimum payments

What Is Credit Card Debt Consolidation?

Debt consolidation allows qualified consumers to take out a new debt consolidation loan that pays off most or all their outstanding debt. By combining all the individual debts and paying them off, the new debt consolidation loan might become the only unsecured debt owed.
Debt consolidation makes sense if:
  • You are able to pay off your credit cards but need a better and faster way to do it
  • You can get a lower interest rate by consolidating your credit card debt
  • The terms of your debt consolidation show that you can pay off your debt in a reasonable amount of time
Not all debt consolidation strategies provide all these benefits, so it is important to consider whether debt consolidation is right for your particular circumstances.

Should you consolidate credit card debt?

You may want to consolidate your credit card debt if:
  1. The interest you qualify currently qualify for is lower than what you’re currently paying.
  2. You would rather pay a single creditor each month than several. This can also be beneficial in protecting your credit source since one late payment from oversight can tank your credit score.
  3. You can afford the minimum payment on all your cards but are looking for a quicker way to eliminate the balances.
However, it may not be in your best interest to consolidate credit card debt if:
  1. You’re not disciplined with your spending.
  2. Your credit score is poor and you only qualify for astronomical interest rates.
  3. Money’s tight and the new payments still won’t be affordable.

Here are 5 Credit card debt consolidation options to consider

1. Debt consolidation loan or line of credit

The most popular way to consolidate credit card debt is through a personal loan or line of credit. If you choose this option, all your outstanding credit card balances will be paid off. The total will transfer to a single loan product. At that point, you will make payments to the loan issuer, and not the credit card companies.
Compare the pros and cons to make a better decision.
  • Lower interest rate
  • Rate shopping permissible by some lenders (with no impact to your credit score
  • Lack of discipline could lead to even more credit card debt

2. Balance transfer credit cards

If you’re approved for a balance transfer credit card, you can transfer your existing balances, up to the credit limit, to your new credit card. This makes managing payments easier. Even better, these cards come with an interest-free promotional period between 12 and 24 months, so you’ll have an ample amount of time to eradicate the outstanding balance without paying interest.
Compare the pros and cons to make a better decision.
  • Merges several payments into one
  • Extended promotional APR period can save you hundreds, if not thousands, in interest
  • High credit barriers to entry
  • You could end up spending a fortune in interest if the balance is not paid in full before the promotional period expires
  • Balance transfer fee applies (usually between 3% and 5%)
  • Could tempt you to incur more credit card debt
“Sometimes opening another credit card can increase the urge to overspend, thus plunging the cardholder further into debt. Card providers force cardholders to activate their credit cards before the balance transfer will take place, which means these debtholders have just received a brand new credit limit. The only way to avoid using the card is to cut it up and don’t look back,” says Consumer Advocate Jennifer Mcdermott.

3. Home equity lines of credit (HELOC)

You can tap into the equity you’ve accumulated in your home to consolidate credit card debt. Once the funds are drawn from the line of credit, it becomes a secured loan with your home as collateral.
Compare the pros and cons to make a better decision.
  • Lower interest rate
  • Interest paid on the loan is tax-deductible
  • Extended loan term
  • Poor credit scores aren’t a problem with some lenders
  • You could lose your home if you default on the loan
  • Extended loan term means more paid in interest over time

4. 401(k) Loans

A 401(k) loan is another option if you’re looking to consolidate credit card debt. However, this is a risky maneuver because you’re depleting your nest egg in the short-term and putting your long-term financial well-being at risk.
And, in the event that you’re unable to pay the loan back or vacate the company, the loan becomes a premature distribution and you’ll be assessed an early withdrawal penalty and income tax.
Compare the pros and cons to make a better decision.
  • No credit check
  • Easy access to fast cash
  • Loans become premature distributions if not paid in full
  • Tapping into your nest egg can negatively affect future earning potential

5. No credit check installment loans

If your credit is tarnished, a no credit check installment loan may seem like a great idea. The problem is that these are simply extended payday loans with high interest rates and should probably be avoided unless you’re prepared to pay the loan off rapidly.
Compare the pros and cons to make a better decision.
  • Good credit not required
  • Exorbitant interest rates
  • High monthly payments

How To Know When It’s Time to Get Your Credit Card Debt Under Control

Since so many credit card users carry a balance each month, it is easy to assume that it’s okay to do so. Here are some warning signs that let you know when you are actually in trouble with your credit cards:
  • Your credit limits are maxed out. Experts agree that charges amounting to more than 70% of your available credit limit may be a warning sign that you need credit card help.
  • You find yourself using your credit card to pay for items you used to pay for with cash. This can be a sign that you are living beyond your means and relying too heavily on credit cards.
  • You’re only able to pay the minimum payment each month.
  • You shift credit card balances from one card to another to avoid over-the-limit spending.
  • Payments are late or missed.
  • You feel embarrassed about your credit card balances.
Can you relate to any of those statements? If so, it’s time to come up with a different credit card strategy.

Allison Martin

Allison Martin is an accomplished finance writer who has written for publications including The Wall Street Journal, MoneyTalksNews, The Simple Dollar, and Her work has been featured on Fox Business, Yahoo! Finance, MSN Money, and ABC News. She enjoys writing about personal development, entrepreneurship, personal finance and is a Certified Financial Education Instructor (CFEI).

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