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5 Strategies for consolidating Credit Card Debt

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5 Methods to Consolidate Credit Card Debt
Consolidating your credit card debt might be beneficial when the new debt is an APR that is lower than the one on the credit card you have.


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Credit card credit consolidation can be described as a strategy that takes several credit card balances and combines the balances into one monthly payment.
is ideal if your new debt is at the lowest annual percentage rate than the credit cards you use. This could lower interest costs as well as make the payments more manageable or shorten the time between payments.
The most effective method to consolidate depends on the amount of debt you're in, your credit score and other factors.
Want to consolidate your credit card bills? See if you prequalify.
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These are the five most efficient ways in order to repay credit card debt:
Refinance with a balance transfer credit card.
Consolidate using a personal loan.
Tap home equity.
Consider 401(k) savings.
Start a debt management plan.

1. Card for balance transfer
Pros :
APR introductory period of 0.
An additional year is required to pay off debt without any interest.

Cons:
Requires good to excellent credit for approval.
Usually carries the cost of transferring balances.
Higher APR starts after the introductory period.

Also called credit card refinancing, this option transfers credit card debt to the credit card which has no interest charges during a promotional time, usually between 12 and 21 months. You'll need excellent to good credit (690 credit score or higher) to be eligible for many balance transfer cards.
A credit card that is a good balance transfer option does not have an annual fee. However, most issuers charge a once-off cost for balance transfers of to five percent of the total amount transferred. Before you pick a credit card, determine if the interest you earn over time will wipe out costs associated with fees.
Try to pay the total balance before the 0% intro APR period is over. Any balance left after that time will have an ordinary credit card interest rate.
>> COMPARE:
2. Consolidation of credit cards loan
Pros:
Fixed interest rate implies that your monthly payment won't change.
Low APRs for those with good to excellent credit.
Direct payment to creditors offered by certain lenders.

Cons:
It is difficult to secure a low rate even with poor credit.
Some loans carry an origination fee.
Membership in credit unions is required to apply.

You can use an unsecured personal loan from an institution like a bank, credit union or online lender to consolidate credit card debt or other kinds of debt. The ideal situation is that the loan will give you a lower APR on your debt.
are not-for-profit lenders that may provide members with more flexible loan terms and costs than lenders online, specifically for borrowers who have bad or fair credit (689 credit score or less). The maximum APR charged at federal credit unions is 18%.
Bank loans offer competitive APRs for those with good credit and benefits for existing bank customers may include larger loan amount and rate discounts.
The majority of online lenders allow you to pre-qualify to borrow without affecting your credit score, though this is not as common among banks and credit unions. Pre-qualifying gives you a preview of the rate, loan amount and term you could get when you formally apply.
Find lenders who have special offers to help you consolidate debt. Some lenders, for example they will offer a discount for a debt consolidation loan or even transfer your loan money directly to creditors making the process.
Are you not sure if a private loan is the best choice? Use our to enter all of your debts into one place, look up the typical interest rates of lenders and calculate savings.
>> COMPARE:
3. Home equity loan also known as line of credit
Pros:
In general, lower interest rates that personal loans.
It is not necessary to have an excellent credit score to be able to apply.
A longer repayment time helps keep payments at a lower level.

Cons:
You need equity in your home in order to qualify for a mortgage, and a home appraisal is usually required.
You are secured by your home that you could lose in the event of fail to pay.

If you're a homeowner, you could be able avail a loan or line of credit on the equity in your house and utilize the money to settle your credit cards and other debts.
A is a lump-sum loan with a fixed interest rate, while a line of credit is similar to credit cards with an interest rate that is variable.
The most common scenario is to require interest-only payment during the draw period, which typically lasts for 10 years. You'll need to pay more than the minimum in order to lower the principal and make an impact on your overall debt at this period.
Because the loans are secured by your home and your home, you're likely to receive a lower rate than what you'd get on a personal loan or balance transfer credit card. However, you may risk losing your property if you don't keep up with payments.
>> MORE:
4. 401(k) loan
Pros:
Lower rate of interest than non-secured loans.
No impact of your credit scores.

Cons:
It could affect the retirement savings of your.
Heavy penalty and fees If you are unable to repay.
If you lose or leave your job, you might need to repay your loan.

If you're a participant in an employer-sponsored retirement account like the 401(k) plan is not advised to get a loan from it, since it could have a significant impact on your retirement.
You should consider it only after having removed balance transfer cards and other types of loans.
One benefit is this loan won't show up in your credit file, which means there's no impact to your credit score. But the drawbacks are significant when you don't pay, you'll owe a hefty penalty plus taxes on the outstanding balance and you could end up facing debts that are more.
As well, 401(k) loans typically are due within five years, except if you lose your job or quit and then due on tax day of the following year.
>> MORE:
5. Debt management plan
Pros:
Fixed monthly payments.
May lower the interest rate in half.
Doesn't hurt your credit score.

Cons:
The cost of starting a business and the monthly fee are typical.
It may take three to five years to repay your loan.

Combine several debts into one monthly payment, with a lower interest rate. This option is ideal for people who struggle in paying off debts from credit cards, but don't qualify for other options due to a poor credit score.
Unlike some credit card consolidation alternatives, debt management plans do not affect your credit score. If your debt is more than 40% of your earnings and can't be repaid within five years, then debt management could be a better choice.
You can find the debt management program through a nonprofit .
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Commonly asked questions What does debt consolidation mean?


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







Do I need to consolidate my the debt?


A debt consolidation plan could be a smart idea in the event that you are able to obtain a lower interest rate than what you're currently paying for your debts. This will lower the cost of interest, lower your monthly payment or assist in paying off debt faster.







What effect will consolidating debt have on my credit score?


Your credit score may temporarily dip when a lender or credit card issuer makes a hard credit inquiry. But if you pay on time and avoid getting into of financial debts in the near future the effect may be positive.









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


Do I need to consolidate my debt?
Debt consolidation might be an option if you can get an interest rate that is lower than the one you currently pay for your debts. This could lower interest costs, lower your monthly payment or allow you to pay off debts faster.


What effect will consolidating debt have on my credit score?
Your credit score may briefly drop when a lender or card issuer conducts a hard credit inquiry. But if you pay on time and stay out of financial debts in the near future the effect may be positive.







Authors' Bios Steve Nicastro is a former NerdWallet authority on personal loans and small business. Its work was highlighted by The New York Times and MarketWatch.


Jackie Veling covers personal loans for NerdWallet.







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