Credit Card Debt Consolidation Strategies
You are convinced that debt consolidation is a strategy to make paying bills easier, faster and cheaper. But which form of debt consolidation is the best? Good question. Here are some strategies for consolidating credit card debt.
What is debt consolidation?
This is basically when you consolidate multiple high interest unsecured debt into one monthly payment, hopefully at a lower interest rate than you pay overall on current bonds. In fact, getting a better rate is the only way the approach makes sense.
A key drawdown is the ability to pay just one bill per month, as opposed to several different amounts and due dates. The best method of consolidation for you depends on factors such as your debt load and your credit rating.
Home equity loan or line of credit
If you are a homeowner, you may be able to use the equity to get a loan or line of credit and use it to write off your credit cards or other debts.
A line of credit is like a variable interest rate credit card. With a home equity loan, you will typically only make interest payments during what is known as the drawdown period, typically the first decade. This means that you have to shell out more than the minimum payment to reduce your principal and reduce your overall debt during this period.
You will get a great rate because the loans are tied to your house. However – and this is huge – if you default, you could lose that cradle.
You can take out such a loan, which is actually an unsecured personal loan, from a bank, credit union, or online lender. Again, you want to get a better interest rate than what you are currently paying.
For credit card consolidation, credit unions are generally more lenient in terms of eligibility. But if you have a good relationship with your bank, try that too. Online lenders are popular because, with just soft credit, which doesn’t hurt your scores, they can give you an idea of what type of loan you qualify for.
Your credit rating is the key here if you want a better rate than what you currently have.
Balance transfer card
Credit card companies sometimes issue what are called 0% interest rate balance transfer cards for an introductory or promotional period. You can transfer your high interest credit card debt to this card to save money and pay off your debt faster. The catch is, you at least need good credit to qualify for any of these cards. You should also be able to repay these transferred debts before the end of the introductory period and your rate goes up.
Debt management plan
Here, you will consolidate multiple debts into one monthly payment at a lower interest rate. You are a prime candidate for this approach if you are struggling to erase your credit card debt, but are not eligible for other options due to a low credit score.
The good news is that DMP plans don’t touch your credit score. If your debt is more than 40% of your income and cannot be paid off within five years, a debt management plan may be right for you. Such a plan is usually developed by certified credit counselors, together with you and your creditors.
Now you know about credit card debt consolidation strategies. Be sure to assess your situation and choose the best approach for you, knowing that consolidation, overall, is a proven way to manage your obligations.