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5 Strategies to Consolidate Credit Card Debt

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5 Ways to Consolidate Credit Card Debt
The consolidation of your debts on credit cards could be beneficial in the event that the new debt has a lower APR than those credit cards.


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Last updated on Sep 27, 2022

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Credit card consolidating debt is an strategy that takes several credit card balances and combines the balances into one monthly payment.
is ideal if the new debt has a lower annual percentage rate than the credit cards you use. This can reduce interest costs, make your payments more manageable , or even shorten the time between payments.
The most effective method to consolidate will depend on the amount of debt you're in as well as your credit score and other aspects.
Want to reduce your debts by consolidating your credit cards bills? See if you prequalify.
Simply answer a few questions and you'll receive personalized results from our lending partners.


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Here are the five most efficient ways in order to repay credit card debt:
Refinance using a balance transfer credit card.
Consolidate your personal loan.
Tap home equity.
Take into consideration 401(k) savings.
Start a debt management plan.

1. Card for balance transfer
Pros :
0% introductory APR period.
A year or more to pay off debt without any interest.

Cons:
Credit score must be excellent or good to be able to get the loan.
Usually carries the cost of transferring balances.
Higher APR kicks in following the initial period.

Also known as credit card refinancing, this option transfers credit card debt to the credit card which charges no interest during a promotional time, typically between 12 and 21 months. You'll need good to excellent credit (690 credit score or higher) to be eligible for many balance transfer credit cards.
A credit card that is a good balance transfer option does not have an annual fee, but many issuers charge a one-time charge for balance transfers of between 3% to 5percent of the amount transferred. When you decide on a card, calculate whether the interest you save over time will erase costs associated with fees.
Try to pay the amount in full before the 0% initial APR period ends. Any balance remaining beyond that period will be subject to the regular interest rate.
>> COMPARE:
2. Consolidation of credit cards loan
Pros:
Fixed interest rate means your monthly installment won't change.
Low APRs for good or excellent credit.
Direct payment to creditor is provided by some lenders.

Cons:
It is difficult to secure a low rate with bad credit.
Certain loans come with an origination cost.
The credit unions need membership to apply.

You can use an unsecured personal loan from a credit union, bank and online lenders to pay off credit card or other forms of debt. Ideally, the loan will provide you with lower interest rates on your debt.
are not-for-profit lenders that may provide members with more flexible loan terms and lower costs than lenders online, particularly for borrowers who have bad or fair credit (689 credit score or lower). The maximum APR that federal credit unions is 18%.
Bank loans provide competitive APRs for good-credit borrowers, and the benefits for customers of the bank may include greater loan amounts and rate discounts.
Most online lenders let you pre-qualify for a without affecting your credit score. However, this feature is less common with credit unions and banks. Pre-qualifying lets you get a preview of the interest rate, loan amount and term that you can expect to receive once you have applied.
Look for lenders that provide special services to help you consolidate debt. Certain lenders, like they will offer a discount on a debt consolidation loan or transfer funds from the loan the funds to creditor directly, simplifying the process.
Are you not sure if a private loan is the best choice? Make use of our tool to record all your debts in one location, view the typical interest rates of lenders and calculate savings.
>> COMPARE:
3. Home equity loan also known as line of credit
Pros:
The typical interest rate is lower that personal loans.
Does not need good credit to qualify.
A longer repayment time helps keep payments lower.

Cons:
You need equity in your home for you to be eligible for a mortgage, and a home appraisal is usually required.
Secured with your home that you could lose if you default.

If you're an owner, you might be able to avail a loan or line of credit based on the equity of your home . You can make use of the money to settle your credit card debts or other obligations.
A is a lump-sum loan with a fixed interest rate and a line of credit works like an credit card that has an interest rate that is variable.
It is common for interest-only payments to be made during the draw time, which is typically the first 10 years. This means that you'll have to pay greater than the minimal amount required to lower the principal amount and put an impact on your overall debt at that time.
Because that the loans come with the security of your house, you're likely to get a lower rate than what you'd get with the personal loan or credit card for balance transfer. However, you may lose your home if you don't keep up with payments.
>> MORE:
4. 401(k) loan
Pros:
Lower rates of interest than unsecure loans.
There is no impact to your credit rating.

Cons:
It could reduce the retirement savings of your.
Heavy penalty and fees If you are unable to repay.
If you are fired or lose your job, you could be required to pay off the loan.

If you have an employer-sponsored retirement plan, like one called a 401(k) plan It's not recommended to take a loan from it as this can significantly impact your retirement.
You should consider it only after having eliminated balance transfer cards and other types of loans.
The benefit is that the loan will not show up on your credit report, so there's no impact to your score. However, there are some drawbacks: If you can't repay the loan, you'll be charged a significant penalty and taxes on the outstanding balance and you could end up in debt for a while.
Also, 401(k) loans typically will be due within five years until you lose your job or quit or quit your job; in which case, they're due on the tax day of the following year.
>> MORE:
5. Debt management plan
Pros:
Monthly fixed payments.
Might reduce your interest rate by half.
Doesn't hurt your credit score.

Cons:
Startup fees and monthly fees are not uncommon.
It can take between three and five years to repay your debt.

Combine several debts into one monthly payment, with a lower interest rate. It works best for those who struggle with debt from credit cards but do not qualify for other solutions because of their low credit score.
Unlike some credit card consolidation options, debt management plans do not affect your score on credit. If your debt is greater that 40% of income and can't be repaid within five years, then debt management might be a better choice.
You can find the debt management program through a non-profit .
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Most frequently asked questions What exactly is debt consolidation?


Debt consolidation rolls multiple debts, including loans or credit cards with high rates of interest loans to make a single payment.







Should I consolidate to pay off my debt?


Debt consolidation might be a good idea in the event that you are able to obtain lower interest rates than the current rate for your debts. This would reduce interest costs as well as lower the monthly installment or assist in paying off debt faster.







What will consolidating debt do to my credit score?


Your credit score could temporarily dip when a lender or card issuer does a hard credit inquiry. But if you pay on time and avoid getting into from debt for the near future it could be positive.









What is the term "debt consolidation?
Debt consolidation combines several debts, such as the high interest credit card or loans, into a single payment.


Do I have to consolidate to pay off my debt?
A debt consolidation plan could be an option if you can get a lower interest rate than the one you currently pay for your debts. This would reduce interest costs as well as lower the monthly installment or help you pay off debt more quickly.


How will consolidating debt affect my credit score?
Your credit score may briefly drop when a lender or card issuer does a hard credit inquiry. However, if you pay your bills on time and stay out of debt in the near future it could be positive.







About the authors: Steve Nicastro is a former NerdWallet authority on personal loans as well as small business. The work of Steve Nicastro has been featured by The New York Times and MarketWatch.


Jackie Veling covers personal loans for NerdWallet.







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