Tuesday, October 4, 2022

How Do I Consolidate Credit Card Debt

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Will It Take Longer To Pay Off Your Debt If You Consolidate

How to Consolidate (and OBLITERATE!) Credit Card Debt

If you extend your repayment term by taking out a consolidation loan, it might take you significantly longer to pay off your credit card debt. While it could be nice to have a more manageable monthly payment, you’ll pay more interest over the life of the loan. Review the terms of any consolidation loan carefully before deciding that it’s the right choice for you.

Borrowing From Your Home Equity

If you have at least 20% or so equity in your home you may be able to take out a Home Equity Line of Credit or a Home Equity Loan and use the money to pay off or pay down your credit card debt.

A HELOC typically charges a variable interest rate tied to a benchmark such as Prime Lending Rate. You only owe interest when you tap your credit line. A HELOC often has a 10-year “draw” period when you can borrow against it, before you must start repayment. A HEL is typically a fixed-rate loan with a set payback period of five to 10 years or so.

One important consideration to weigh is whether you are comfortable using your home as collateral to pay off your credit card debt. If you fall behind on your HEL or HELOC payments you could be forced to sell the home to pay back the loan.

Alternatives To A Debt Management Plan

DMPs are not always the best route for debt relief. Problem debt from student loans and medical bills will generally not be covered under such plans. Other options:

  • If your problem debt is less than 15% of your annual income, you could take a DIY approach using the debt avalanche or debt snowball method.

  • A debt consolidation loan, if you have good enough credit to qualify, can also gather debts into one at a lower interest rate. You have control over how long the loan is and retain your ability to open new credit lines.

  • Bankruptcy may be better if your debt is more than 40% of your annual income and you see no way to pay it off within five years. This debt relief tool can quickly give you a fresh start, and consumers’ credit scores can start to rebound in as little as six months.

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What Do I Need To Know If Im Thinking About Consolidating My Credit Card Debt

When you consolidate your credit card debt, you aretaking out a new loan. You have to repaythe new loan just like any other loan. If you get a consolidation loan and keep making more purchases withcredit, you probably wont succeed in paying down your debt. If youre havingtrouble with credit, consider contacting a credit counselor first.

Consolidation means that your various debts, whether they arecredit card bills or loan payments, are rolled into one monthly payment. If youhave multiple credit card accounts or loans, consolidation may be a way tosimplify or lower payments. But, a debtconsolidation loan does not erase your debt. You might also end up paying moreby consolidating debt into another type of loan.

Before you use a consolidation loan:

  • Take a look at your spending. Its important to understandwhy you are in debt. If you have accrued a lot of debt because you are spendingmore than you are earning, a debt consolidation loan probably wont help you getout of debt unless you reduce your spending or increase your income.
  • Make a budget. Figure out if you can payoff your existing debt by adjusting the way you spend for a period of time.
  • Try reaching out to your individualcreditors to see if they will agree to lower your payments. Some creditors might be willing to accept lower minimum monthlypayments, waive certain fees ,reduce your interest rate, or change your monthlydue date to match up better to when you get paid, to help you pay back yourdebt.

Home equity loan

How To Consolidate Debt

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First, you will want to decide which debt consolidation strategy you are going to use. As mentioned above, debts can be consolidated with or without a loan. You can find debt consolidation loans from banks and online lenders. Nonprofit credit counseling agencies will be able to provide all of the benefits of a debt consolidation loan without having to take out new credit.

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What Is A Debt Consolidation Loan

If you take out a debt consolidation loan, you use the loan to pay off all of your credit card providers, meaning that youll have paid off all your existing credit card debt. Youll then work to pay off the loan in order to get yourself completely debt-free.

Opting for a debt consolidation loan means that youre trading one type of debt for another the benefit of doing this is that debt consolidation loans may have better interest rates than those of multiple credit cards. This allows you to save money on interest payments, and many people find it easier to manage one debt consolidation loan rather than several credit card debts.

Of course, you should always check the terms and conditions of any debt consolidation loan first. Make sure its financially preferable to how you were previously paying off your credit cards, and that any interest on the loan is lower than that of your cards.

How Do I Choose The Best Credit Card Consolidation Lender

To find the best credit card consolidation lender, youll need to do your research and compare as many lenders as possible so you can find the right loan for your needs. Consider not only interest rates but also repayment terms and any fees charged by the lender then you can choose which lender works best for you.

As you shop around, be sure to keep an eye out for potentialpersonal loan scams, too. A few red flags to watch out for include:

  • Not requiring a credit check

  • Demanding upfront payment before processing your application

  • Pressuring you to make an instant decision

  • Asking you to send them money in a way thats harder to trace and doesnt involve bank accounts

Remember that if you take out a credit card consolidation loan through Credible, you can see your prequalified rates from multiple lenders that have been thoroughly vetted. Credible evaluated loan and lender data points for 22 lenders in 10 categories to identify some of the best personal loan companies.

Here are Credible’s partner lenders that offer personal loans for credit card consolidation:

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Options For Credit Card Consolidation

There is more than one way to consolidate credit card debtin fact, there are three basic solutions. Two are do-it-yourself and involve taking out new financing to pay off your existing credit card balances. The second takes professional help. You set up a repayment plan through a credit counseling agency. But you still owe your original creditors.

  • A consolidates credit card debt by moving your existing balances to a new balance transfer credit card. These cards offer 0% APR introductory rates on balance transfers, giving you a limited time to pay off debt interest-free.
  • With a debt consolidation loan, you take out an unsecured personal loan at a low interest rate. You use the funds from the loan to pay off your credit card balances. This leaves only the low-interest loan to repay. There is also a secured version of this where homeowners borrow against their home equity, but that can be risky.
  • A debt management program is basically a professionally-assisted debt consolidation program. You set up a repayment plan you can afford with the help of a certified credit counselor. Then they negotiate with your creditors to reduce or eliminate interest charges.
  • Identifying the best way to consolidate credit card debt out of these three options depends on your financial situation. That includes how much you owe, your credit score, and how much money you have available for monthly payments.

    Where To Go For Help If You Need It

    Is It A Good Idea To Consolidate Credit Card Debt

    You may need help from a professional agency if you cant qualify for traditional options because you have poor credit or few assets. Getting advice from a nonprofit can help you sort through your options and chart the best course of action.

    While you may see debt settlement companies advertised as a debt solution, working with these types of companies is a less desirable option because they often charge fees and use methods that harm your credit scores. You can negotiate a settlement with the credit card company on your own, without paying fees to a third-party company.

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    How Do Credit Card Consolidation Loans Work

    When you take out a credit card consolidation loan, you use the loan proceeds to pay off all of your outstanding credit cards. So, instead of owing money on multiple cards, you’ll have a single obligation you’ll pay one lender rather than many creditors. The amount of your monthly payment will depend on the total amount you borrow, the interest rate, and the payment terms of your consolidation loan.

    Some finance companies, bank subsidiaries, and similar lenders make unsecured consolidation loansthat is, they lend you money without requiring that you pledge any property as a guarantee that you’ll pay. If you have a good credit score, consolidating your credit card debt might be a viable strategy for paying off the debts. But consolidation loans aren’t without problems. The interest rate on these loans can be astronomical, especially if you don’t have good credit, often reaching 36% or more. Lenders also might charge fees, which can bring the effective interest rate closer to 50%. Even if you get a good promotional introductory rate, the rate could go up over time. You’ll probably have to pay the debt for longer than you would be otherwise and possibly pay more interest than if you’d stayed with the original creditor. Also, getting this kind of loan doesn’t help you change the spending habits that got you into debt trouble in the first place.

    How To Consolidate Credit Card Debt

    Consolidating credit card debt could save you money and simplify your life — but how do you do it? Just follow this simple guide.

    Anyone who owes money on knows this kind of debt can be hard to manage. Not only are interest charges typically high, but you may also owe multiple lenders and be forced to juggle several monthly payments. Consolidation is often the solution to make repayment easier, but you need to know how to consolidate credit card debt to avoid making a bad financial situation worse.

    This complete guide will provide the answers you need to help you use debt consolidation to reduce interest and make debt repayment much simpler.

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    Learn How Debt Consolidation Works

    Even if you don’t have a stack of credit card bills with high interest rates, you may have school loans, car loans or high-interest loans. There are ways to manage your debt so you can pay less in interest, minimize monthly payments and eventually eliminate these loans altogether. Consider these three ways to reduce your debt.

    Other Debt Relief Options For Active Military And Veterans

    Debt Consolidation

    Recent surveys conducted by the National Foundation for Credit Counseling have revealed that one third of the servicemembers surveyed struggle to pay bills on time. More than half reported that they are just getting by financially. Most are weighed down with . Others have mortgages and personal loans to pay.

    For those struggling with mortgage payments, some financial institutions, including USAA, offer forbearance so servicemembers can avoid foreclosure. If you bought your home with a VA loan, you could apply for a VA loan modification. This is a process where the lender rolls all the delinquent payments into a new balance, resetting the payment schedule.

    Except for student loans, most debts can also be discharged through settlements. This should be considered the nuclear option for servicepeople struggling with debt. The settlement process usually requires missing monthly payments and taking a hit on your credit score. Speak to a credit counselor before exercising this option.

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    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.

  • Shop for a balance transfer card that offers low fees and the longest 0% APR teaser rate teaser rates usually apply for 6-18 months, depending on your credit score.
  • Apply for the best card that you find. Only apply for one card, because filing multiple applications can decrease your credit score.
  • Once you open the account, begin transferring your balances. You can call customer service or set them up online. Youll need the account numbers for all balances you wish to transfer.
  • Be aware that there will be a fee applied for each balance transferred. Fees range from $3 per transfer to 3% of the balance transferred.
  • With your balances consolidated, quickly pay down your debt. Ideally, you want to pay off the full balance before the teaser rate expires. So, divide your total balance by the number of months you have the teaser rate.
  • Being Debt Free Vs Your Credit Score

    When its all said and done, being debt free is one of, if not the best thing you can do for yourself and your future. If you are currently carrying a lot of credit card debt and want to pay it down once and for all but are afraid of how that will affect your credit score, answer this question. Is a high credit score really more important than being debt free?

    Interested in more on this topic? Check out this article.

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    Does Debt Consolidation Hurt Your Credit

    Debt consolidation loans can hurt your credit, but its only temporary. When consolidating debt, your credit is checked, which can lower your credit score. Consolidating multiple accounts into one loan can also lower your credit utilization ratio, which can also hurt your score.

    However, making the choice to consolidate your debt into one manageable payment will improve your credit score over the long term. Payment history is 35 percent of your credit score, so making on-time payments will increase your score. If you only have revolving credit like credit cards, adding in a personal loan for debt consolidation can improve your credit mix and also boost your score.

    Use A Balance Transfer Credit Card

    Credit Card Debt: How to Consolidate it (2019)

    A balance transfer lets you move balances from one or more credit card accounts to a different card. Balance transfer credit cards often offer an introductory 0% APR on balances you transfer within a certain amount of time.

    Pros: If you pay off the balances you transfer before the introductory period expires, you could avoid paying interest charges on the transferred balance altogether.

    Cons: The promotional period is limited. If you dont pay off the amount you transfer before the intro period ends, the remaining balance will accrue interest at the cards regular rate.

    In addition, some cards charge a balance transfer fee, which will add to the debt you must repay. Also, the amount you transfer including any fees charged cant be higher than your , which may not be high enough for you to pay off all your debt.

    Keep in mind that you may not be allowed to transfer balances between cards issued by the same lender. And if you opt for a balance transfer, its especially important to pay on time because late payments may cancel the introductory APR offer.

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    Why Would Someone Want To Consolidate Their Credit Card Debt

    There are countless reasons why someone might have racked up an unmanageable amount of credit card debt, from irresponsible spending to unexpected expenses. When life happens, sometimes we need to turn to the easiest and most convenient form of borrowing money, our credit cards. Debt consolidation is one of the best options for those who have overused their credit cards, regardless of the reason. Here are some of the most common reasons why someone might want to consolidate their credit card debt.

    • To simplify their finances by reducing the number of monthly payments they need to keep track of
    • To get a lower interest rate and save money
    • Because they can no longer afford to carry the debt anymore
    • As an alternative to more drastic options like consumer proposal or bankruptcy
    • To get out of debt quicker

    Will A debt consolidation loan look bad on your credit report? for the answer.

    How To Consolidate Your Credit Card Debt

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    Join millions of Canadians who have already trusted Loans Canada

    According to a recent study by TransUnion, there are currently roughly 43 million credit cards in use in Canada. Just in case you were wondering the current population of Canada is around 35 million, this means there are more credit cards in use than people in Canada. When there are that many credit cards floating around, ready to be used, debt problems are almost a given. Currently the average Canadian carries a balance of roughly $4,094 on one or more credit cards.

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    Low Rates Are Favorable For Consolidation

    During an economic downturn like the one were experiencing now, the Federal Reserve will lower the Federal Funds Rate, which is the interest rate that financial institutions use to set their interest rates. The Federal Funds Rate is currently near zeroit ranges from 0.00 to 0.25.

    Thats good for consumers who want to borrow. Interest rates on various types of loans are much lower than they were before the downturn started. That means if you can qualify for a debt consolidation loan, you can enjoy a low rate. Its the qualification part that can be challenging.

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