What is the smartest and most efficient way to consolidate debts?
Here’s everything you need to know all in one payment.
If you have credit cards debt, you are not alone. Credit card consolidation is the smartest strategy for paying off credit card debt. Consolidating credit cards debt allows you to combine existing credit card debt and get a single loan with lower interest rates. Lower interest rates allow you to save money each monthly and pay off your debt quicker.
- The amount of credit-card debt
- The interest rates
- Your credit score
- If you own home equity
There are many factors that can influence your decision to consolidate credit cards debt.
Most people consolidate their credit cards to pay off existing debt. Credit card consolidation may also be used in conjunction with “refinance or credit cards.”
3 ways to consolidate credit card debt
Here are 3 popular options to consolidate credit-card debt
- Consolidate your personal loans with one another
- Get a 0% interest credit card
- Tap home equity
Let’s go over each option.
1. Consolidate with personal loans
- A personal loan can be an unsecured loan with a fixed monthly payment that helps you to pay off your credit cards.
- The goal of a personal loan is to get a rate that is lower than the rate you pay on your credit cards. Personal loans could start at as low 5.99% APR.
- Your monthly payment is fixed at a fixed interest. Credit cards, however, have variable interest rate which can change in time.
- Personal loans are considered installment loans, which can help improve credit scores.
- A personal loan may include a one time origination fee. This is part of the loan’s APR.
- Personal loans can be obtained if you have excellent to good credit. Many lenders offer online applications.
This calculator shows how much you can reduce your credit card debt by consolidating it with a personal lender.
2. Get a 0% APR Card
- The 0% APR credit-card is an effective tool for consolidating high interest credit card debt.
- If you have good-to-excellent credit, you may be eligible for a 0% APR card.
- You can transfer the credit card balances to a new, 0% APR creditcard.
- As the name implies, a credit with 0% APR means that you don’t have to pay interest for any credit card balances for a certain period (e.g. 12-18 month).
- Some credit cards offering 0% APR may also offer 0% interest on new purchases within the same time period.
- After the 0% rate period expires interest will accrue on your balance, and regular monthly installments will begin.
- Some 0% interest credit cards may charge a small fee for balance transfer, but other cards have no balance transfer fee.
3. Tap home equity
- A third option is tapping the equity in your house and using the proceeds to pay down high-interest creditcard debt.
- Typically, the home equity loan interest rate is lower than credit card debt.
- To be able to use this strategy, your home must be in good condition and you should have sufficient equity.
- A home equity loan or line of credit is available.
- This is a secured loan. It’s not a personal loans.