Of course, no two financial challenges are alike and to consolidate credit card debt you may have to do some research. While you and your friend could be in a financial crisis, your credit consolidation options could be different.
As such, a solution that works for your neighbor may not be the best choice for your financial situation. That means people have to consider the elimination of their budget, credit, and goal to find the right way to consolidate their debts. To consolidate credit card debt refers to combining multiple debts and rolling them together to your weekly or monthly income.
Best Ways to Consolidate Credit Card Debt
The goal of credit card debt consolidation is always the same; eliminate or lower interest rates so that a creditor can pay off their debt faster. Below are five viable debt consolidation options, but each works best for certain financial situations.
Personal Debt Consolidation Loan
It refers to an unsecured loan that borrowers can apply and use for paying off their debts. People with a high credit score can qualify for a loan with an interest rate of below 10%, which is the maximum rate that a borrower needs to make their credit consolidation solution effective. The lender will automatically disburse the funds to the account of the borrower once the loan is approved. A personal loan is a viable option for creditors to pay off all their credit balances in one shot. You can consider a loan with an extended repayment period to reduce the monthly payment. That means a borrower will pay less and clear their balance faster.
Debt Management Program
It’s a form assisted option of consolidating debt that best suits people with too much debt to consolidate or a low credit score. A certified debt management agency will help you assess your financial situation and choose the right debt management program. Debt management program usually let borrowers select a payment that fits their budget. The agency can also negotiate payment terms on your behalf to help reduce interest charges. Debt management agencies often have connections with lenders and can help borrowers get better rates than they can themselves. The borrower will pay the agency once and leave it to pay the credit off accordingly.
Balance Transfer Credit Card
These are the first debt consolidation option for anyone with a high credit score. Only persons with a high credit score can qualify to consolidate credit card debt. It offers 0% APR on the transfer of balance after a borrower opens up an account. However, the introductory period of a balance transfer credit card can last for up to 24 months depending on the financial situation of a borrower. It’s always wise to go for an extensive introductory period that provides you more time to clear the balance at no interest. Balance transfer card lets borrowers eliminate their consolidated debts before the APR interest charges kick in, so borrowers should plan carefully and make payments that can reduce these balances.
Home Equity Line of Credit
It’s an option to consolidate credit card debt, and it’s similar to a home equity loan. It let investors borrow against their home using their line of equity. However, lenders in the home equity line of credit provide credit based on the value of the borrower’s equity. It has an option for borrowers to withdraw to pay off their debts and concentrate on other financial goals first. Borrowers will make interest-only payments for the first decade with a home equity line of credit. However, borrowers must repay their balance at the end of the first decade. HELOC is a little tricky way to consolidate credit card debt, especially for people that have never managed it before.
Home Equity Loan
Homeowners are allowed to borrow against their home’s equity, which is the difference between the value of their home and mortgage. Home equity loan lenders let homeowners borrow against up to 80% of the cost of their property. That means a homeowner can borrow up to $80,000 if their home has an equity of $100,000. The home equity loan is similar to the personal consolidation loan, and it’s the lump sum that a borrower receives from the lender. However, the only difference is that borrowers use their home as collateral for the loan. While home equity loan can help lower interest rates, it can increase foreclosure risk.