Credit cards are perfect for establishing a solid foundation for credit building as well as serving as a reliable source of emergency funds. Even so, sometimes the unexpected happens, leaving you stuck with numerous credit card debts with varying balances. While executing a proper technique to clear these debts can be draining, it is still achievable. Today, we look at how you can consolidate credit card debts for easy tracking and smooth debt repayment.
Also referred to as credit card refinancing, a credit card balance transfer is the best way to consolidate debt and save money. With this option, most balance transfers have an introductory offer of 0% APR for a specified time upon opening the card. Based on the card, the introductory rate often remains active for a promotional period of about six to 21 months.
Most balance transfer cards require an excellent credit score of 690 or higher. Balance transfer issuers have a one-time balance transfer fee that ranges between 3% and 5% of the transferred amount. To benefit from a balance transfer card, focus on clearing your balance before the 0% introductory offer period elapses. Any balance remaining after the period will attract a regular interest rate on credit cards.
If you are a homeowner with multiple high-interest credit card debt, you can use a home equity loan or cash-out refinance to settle your balances faster and save the funds incurred on interest payments. Basically, home equity involves taking a second mortgage on your property.
Since an underlying asset for your second mortgage is available, you may incur a fixed lower interest rate, reducing your overall debt burden. The lower interest rate also enables you to clear the balance more quickly.
One of the popular ways to consolidate credit card debt is to approach a credit union or local bank for a personal loan. Nowadays, you can easily complete the application online via your smartphone. Personal loans provide flexible terms, mostly between 12 and 60 months, with consistent monthly repayment due dates for easy budgeting.
Your credit score, total debts, total assets, and the loan term are among the top determining factors for your personal loan interest rate. Additionally, you may have to pay origination fees, which are included in the overall loan costs.
With a debt consolidation program, you combine all your credit cards into a single payment. This allows you to send a single payment for all your debts to the program. In turn, the program forwards individual payments to your creditors. Keep in mind that this is not a debt consolidation loan but a way to make your existing loans more manageable. Debt consolidation programs work hand-in-hand with your creditors to lower your interest rates on debts as well as minimize varying fees, like lateness fees.
Typically, a 401(k) loan shouldn’t be your first option for debt consolidation, but it can come in handy after you have ruled out other loan types. The good thing about this loan is that it doesn’t appear on your credit report, so it cannot affect your credit score. However, as you repay the loan, you get to boost your credit rating over time. Most 401(k) loans are usually due within five years. However, if you quit or lose your job, they become due on the tax day for the following year.
Don’t allow numerous credit card debts to weigh you down and dig into your mental health. Make a wise financial decision to consolidate them into a single loan. The move will help lower your interest rates while allowing you to gain control over your finances.