Look Into Strategies To Pay Off Credit Card Debt
With the debt snowball method, you target the card with the lowest balance and make extra payments toward that account, while paying just the minimum on all other cards. Once you’ve paid off that balance, move on to the next-lowest balance and add what you were paying on the first card to pay it off even fasterhence the “snowball” effect. You’ll continue this practice until you’ve paid off all of your credit card balances.
The debt avalanche method works similarly to the debt snowball method. The only difference is that you’ll focus on the cards with the highest interest rates first instead of the lowest balances.
The debt snowball method may be a better option if you’re struggling to get motivated to pay off your debt. Paying off small balances quickly can give you small wins early, making it easier to build momentum. The debt avalanche method, on the other hand, can save you more money because you’re getting rid of debts with higher interest first.
Depending on your debt situation, though, the difference in savings may not be large. Use a debt snowball calculator to determine which is the better option for you.
Set Up A Debt Management Plan To Consolidate Credit Card Debt
If you’re struggling to pay your credit card debt but don’t qualify for other debt consolidation options due to low credit, setting up a debt management plan might be a good idea. Unlike other credit card consolidation options, debt management plans don’t affect the credit score. If you decide on this option, you’ll make one monthly plan to a debt management agency, and it will pay your creditors on your behalf.
- You only need to make one monthly payment.
- You may be able to secure a lower interest rate.
- Doesn’t require a high credit score to qualify.
Does The Downturn Affect Consolidation With A Debt Management Plan
The good news is that the limitations that you see with do-it-yourself debt consolidation dont affect people who want to consolidate with a debt management plan, Herman says. There are never any credit score or debt-to-income ratio requirements you must meet to enroll in a debt management program. You can use the program regardless of how low your credit score is or how much debt you need to consolidate.
This means that people who want to consolidate still have a way to do so even if they cant qualify for the do-it-yourself options.
Credit card companies want to work with people, Herman encourages. Working with a credit counseling organization like Consolidated Credit shows them that youre serious about pay back everything you charged on your credit cards. So, we can work with them to reduce or eliminate the interest charges applied to your balance and find a monthly payment that you can afford. Its a great way to consolidate for those who cant successfully consolidate on their own.
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Move Some Or All Of Your Card Debt To A Balance Transfer Card
Balance transfer credit cards, offered by many banks across the country, are designed for cardholders who want to pay down an existing balance.
Benefits of balance transfer cards
- Balance transfer cards often offer lower interest rates than other credit cards.
- Many balance transfer cards come with no annual fee.
Drawbacks of balance transfer cards
- A balance transfer card’s APR may not be lower than the interest rate you’re currently paying: be certain to understand the APR on your current credit cards before you commit to a balance transfer.
- You may be subject to a high APR on any balance that you don’t manage to pay off before the low or no interest rate promotional period expires.
- Balance transfer cards could require you to pay a transfer fee on either each transfer or as a percentage of the amount transferred.
Is Consolidating Credit Card Debt Bad For Your Credit
If you want to see where your credit stands, you can get free copies of your credit reports from AnnualCreditReport.com.
could also helpâand itâs free to everyone. It has a tool called the Credit Simulator that lets you explore the potential impact of your financial decisions before you make them. That includes things like taking out a personal loan or opening a new credit card to transfer balances.
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Other Ways To Consolidate Debt
There are a few other ways to consolidate debt, but theyre not ideal. The first is to use a debt consolidation program. With this option, you dont take out a loan. Instead, you make one payment per month to a company, which distributes the funds to your creditors. The company also negotiates on your behalf to try to get lower rates. But youll have to pay fees to the company, and you may suffer credit score damage because the program might not negotiate with creditors until you have missed a few payments.
Another option is to borrow from your retirement account. But youll end up having to pay interest into your account to make up for the time the money wasnt invested. In addition, youll need to pay the loan back in 5 years or face an early withdrawal penalty. The timeline moves up if you lose your job, too. In that case, youd need to pay the money back by the tax day for the year in which you lost your job.
Ultimately, the best way to consolidate debt for most people will be a personal loan because it provides decent funding amounts and APRs without requiring any collateral. To check your chances of getting approved for a personal loan, along with what rates you might qualify for, use WalletHubs free pre-qualification tool.
Can You Afford To Pay Off Your Credit Cards
Consolidating your credit card debt doesn’t eliminate it. Even if the consolidation loan reduces your monthly payment, you still have to pay off all you owe. So, if you don’t have a steady income or can’t afford your monthly payment, consolidating your credit card debt probably won’t help you get back on track.
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Consolidated Credit Offers Proven Results In Credit Consolidation
In nearly 30 years, Consolidated Credit has helped consumers consolidate over $9.75 billion in credit card debt. In 2020 alone, we helped over 17,000 Americans consolidate over $232 million in credit card debt.
This map shows the average balance that consumers had in each state when they consolidated. You can also hover over each state to see how much debt we consolidated for clients in each state in 2020.
Keep in mind that we understand that credit consolidation is not the right solution for everyone. As we said in the introduction, this is not a financial silver bullet that will work in every situation.
As a nonprofit credit counseling organization, our certified credit counselors will only recommend a debt management program if it is the best debt solution to use in your situation. So, while we provided free credit counseling to over 628,000 people last year, only roughly 17,000 went on to consolidate with us.
For others, some received recommendations to apply for credit consolidation loans or balance transfer cards. If a counselor sees that you should be able to consolidate successfully on your own, they can confirm that for you.
In other cases, the people who received credit counseling were simply not a good fit for consolidation in their current situation. Many were facing unemployment and lost income. While credit consolidation may lower someones monthly payments, those payments need to be made.
How To Consolidate Credit Cards With A Balance Transfer
Balance transfers are the best option for credit consolidation when you have excellent credit and a limited amount of debt. Balance transfer cards offer 0% APR for a limited time after you open the account. The higher your score, the longer the 0% APR period.
The goal is to pay off your balance before the 0% APR period ends. Once it does, the regular APR for balance transfers will apply, so your rate will basically be right back up where you started.
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Refinance With A Balance Transfer Credit Card
A balance transfer is a type of credit card transaction in which you move the money you owe from one credit card to another that charges a lower interest rate. When choosing a balance transfer credit card, you should consider several factors such as the transfer fees you have to pay, availability of purchase offers, and the credit limit, among others.
- Consolidates your credit card debt into a single, manageable payment.
- Many of the balance transfer cards come with interest-free periods, ranging from six to 18 months.
- Allows you to pay off high rate credit cards to low-interest ones, enabling you to save money and get out of debt faster.
- The 0% interest offer lasts for a limited time.
- Although some cards offer no-fee transfers, most cards charge between 3% and 5% of the transfer amount.
Note that refinancing with a balance transfer credit card is recommended only if you have good to excellent credit. That’s the only way to qualify for the low-interest rate and the 0% interest offer.
Best Ways To Consolidate Debt
The best way to consolidate debt typically varies for each individual and their unique financial situation. Here are some of the best options to consider:
- Debt consolidation loans. Personal loans are among the most common ways to consolidate multiple debts. This method will help you streamline all your debt payments under one loan.
- Balance transfer credit cards. Highly qualified borrowers can access no-interest financing through balance transfer credit cards typically for one year to more than 18 months. This debt consolidation method is a great way to streamline your payments while avoiding interest through the promotional period. However, unpaid balances at the end of the promotional period will begin to accrue interest.
- Home equity. If you have enough equity in your home, you can utilize a home equity loan or home equity line of credit to help consolidate your debt. Be careful with this option, though. Because your house secures the loan, the lender can repossess your home if you fail to repay the loan.
- 401 loans. A 401 loan is a loan you take out from your own 401 account. You typically borrow the greater of $10,000 or 50% of your vested account balance up to $50,000, and you generally have up to five years to repay it.
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How To Consolidate Credit Card Debt With A Personal Loan
Using a loan to consolidate credit card balances is another DIY option you can use if you have good credit. You take out a loan the lowest interest rate possible and use the funds you receive to pay off your credit cards. This leaves only the loan to repay.
This is often the best way to consolidate credit card debt if you want lower monthly payments. Depending on the term you choose, you can significantly reduce how much you pay each month. But you still get out of debt faster than you would with traditional payments thanks to the low APR.
How We Chose The Best Debt Consolidation Loans
To select the best debt consolidation loans we took into consideration,
- Lenders offering low APR Rates, a variety of loan repayment terms, access to loan specialists, an online application, debt calculator, fast funding, no application fees or a low origination fee
- J.D. Power Consumer Lending Satisfaction Study: This study measures overall customer satisfaction based on application and approval process, loan management, offerings, and terms and closing
- Companies with customer service available through phone, chat, or email
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Why Should You Consolidate Your Debt
Consolidating your credit card debt has many benefits. For a start, merging all your debts into one means youll only have one monthly repayment to make rather than several. This can make it much easier to keep track of what you owe and when.
Another benefit is that you may be able to take advantage of a lower interest rate which has the potential to save you hundreds of pounds. If the loan or credit card you choose has a lower interest rate than what youve been paying, youll be much better off and be able to clear your debt faster.
Multiple Credit Cards: A Curse In Disguise
While having multiple credit cards helps you afford your everyday purchases, their convenience can also encourage a detrimental habit of excessive shopping. This unhealthy habit has brought about financial disaster for many individuals and families, who end up accumulating a high amount of debt and messing up their credit scores.
A recent report reveals that the average household credit card debt stands at $5,315. If you’re having multiple credit cards and would like to escape the dark cloud of debt hovering over your head, there’s a way that promises a happy ending: consolidating credit card debt.
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Explore Your Options For Credit Card Debt Relief
Credit card debt consolidation is just one way to manage credit card debt. To decide whether itâs right for you, it may help to examine other . Learning ways to cut expenses may also be helpful.
If paying your credit card bills is a struggle, consolidating credit card debt may offer a way to help you get back on track. But if you think you may miss or have already missed a credit card payment, the CFPB recommends reaching out to your credit card company as soon as you think you need help. Your credit card company may be able to work with you to keep you on track or help you get back on track.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Ways To Consolidate Credit Card Debt
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Consolidating your debt is ideal if the new debt has a lower annual percentage rate than your credit cards. This can reduce interest costs, make your payments more manageable or shorten the payoff period.
The best way to consolidate will depend on how much debt you have, your credit score and other factors.
Here are the five most effective ways to pay off credit card debt:
Refinance with a balance transfer credit card.
Consolidate with a personal loan.
Tap home equity.
Start a debt management plan.
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What Is A 401
A 401 is basically an investment account that allows you to stash away money for retirement. The money is deducted directly from your paycheck before taxes are withdrawn, so it can greatly reduce your income tax liability.
If you have a 401 account, you may have the option to take out a loan from it. The maximum amount you can borrow is usually around $50,000, or half of your vested balance, whichever is less.