Today’s guide will put you through some Reliable Ways to Consolidate Your Credit Card Debts. So, if you’re having trouble managing credit card balances, consider consolidating (combining) your debt profile to save time and money. Therefore, if you personally have debts on your different credit cards, then credit card debt consolidation is one of the best strategies that can help you get your financial life under perfect control.
To tell the truth, consolidating credit card debts in many exciting ways can ease your stress. Firstly, you can reduce the number of payments monthly. In addition, you can even get a much lower interest rate to enable you pay off your debts conveniently. This will help you save more money and time.
This sounds like a relief. Then read on to learn five reliable ways you can consolidate(combine) credit card debts.
- Make use of balance transfer credit card.
- Get a debt consolidation loan.
- Check out peer-to-peer lending.
- Use a home equity loan or a line of credit.
- A credit counselling agency will help you.
1. Use a Balance Transfer Credit Card
Having a good credit score is good, a balance transfer credit card might work for you. As a matter of fact, you’re going to need a very good and an exceptional FICO score. Meaning that you might need at least a 740 or so, to qualify for the best and most affordable balance transfer cards. Lenders also use your credit history as well as information from your application to make a decision, so your supporting data could most likely help you get approval.
As of now, the top balance transfer credit cards are offering a 0% annual percentage rate with an introductory period which can range from 12 to 21 months. This is a golden opportunity to pay off your debt without paying interest, if you qualify. Ensure your credit limit is high enough to cover the total amount you want to transfer.
There are effective ground rules you should know to stay out of trouble. Firstly, you must determine your monthly payment limit so you’ll pay off your debt before the end of your intro period. If your new card has a balance transfer fee, which can be up to 5%, do well to include that fee in the total amount you need to pay back for that month.
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For example, Let’s say you’re transferring a total of $10,000 into a card with an 18-month intro period and a 3% transfer fee. You’ll need to pay $572.22 every month to pay it off before the intro period ends ($10,300/18 = $572.22).
At the end of the intro period, you’ll start paying interests at the regular go-to rate on your balance. If you’re unable to pay the debt off before the 0% APR(annual percentage rate) ends, then to decrease your debt, you’ll have determine how much you can pay per month.
Secondly, you can avoid using your balance transfer card for new purchases. Sometimes, your new balance transfer card will offer a 0% intro rate on purchases as well. Don’t get swayed by that offer, it’s risky. You can use this card for new purchases when you’re totally debt-free.
If your score isn’t high enough to get the 0% introductory APR offer on a balance transfer card, you still might qualify for a balance transfer card that has a lower APR than what you have on your credit cards at the time.
2. Get a Debt Consolidation Loan
If for any reason(s), you still do not qualify for one of the top balance transfer credit cards, you can consider consolidating your debt with any personal loan.
Quite understandably, many people are still grappling high prices right now. Inflation in June 2022 reached a new 40-year high of 9.1%. If you’re in a position where you can start paying off your debt in bits, consolidating many credit card balances into one instalment payment per month can save you quality time and money. And best of all, you can get a fixed rate still with a 0% APR.
The interest rates that you’ll get may vary based on your creditworthiness and lender. This is why it’s important to lookout and carefully compare rates. Here’s a tip: Do your rate shopping within two weeks so it will count as one hard inquiry instead of several inquiries. Hard inquiries are quite cumbersome and can damage your scores by up to five points, applying this strategy helps limits the damage to your score.
As with credit cards, loan companies take into serious consideration not just your score. For instance, a debt consolidation loan company can look at your credit report, debt-to-income ratio, employment history and income, etc.
Even without a good credit score, go ahead and do the research, see if you can find lower rates than what you currently have on your credit cards. That alone helps you save a lot of money.
3. Check Out Peer-to-Peer Lending
Another choice for credit card debt consolidation is peer-to-peer lending. P2P loans, also called social lending, do not come from traditional lenders, like commercial banks or other credit facilities . Each platform is dynamic, but P2P matches borrowers with people who want to invest their money by giving you a loan.
If your loan gets approved, the rates are quite low, especially if you have very good credit. Each P2P lender has a minimum credit score requirement, which can be as low as 580, but for some P2P lenders, at least a 640 is added advantage. As with other types of credit facilities, if you get approved with a fair credit score, your interest rate could be high.
Note that P2P services are quite different and have various requirements for credit scores, loan terms, fees and other factors. Be sure you read the FAQ section and understand how each company handles loans.
4. Get a Home Equity Loan or a Line of Credit
Even with debts on high-interest credit cards, it’s possible to get a home equity loan that will enable you pay off your credit card debts. The interest rates for those with good credit can be very low.
With a home equity loan, you get a fixed amount of money and your home covers for collateral. You can have a monthly payment over an agreed term. Quite unfortunately, If you can’t make the payments as at when due, you could lose your home.
A home equity line of credit is different from a home equity loan. A HELOC is similar to a revolving line of credit. You can borrow as much as you need (ensure it is within your credit limit) and make payments on the amount you borrow. Again, if you can’t make the payments, you could lose your home.
5. A credit counselling agency will help you.
You have to work with a Credit Counselling Agency. But what if you’re in so much debt such that you can’t make monthly payments even if you consolidated your debt? You probably think you have to deal with this alone, but the good news is you can reach out to National Foundation for Credit Counselling for help. Courage to ask for help is all you need, so don’t consider it a weakness.
There are a number of counsellors you can talk to for free and discuss options to help you get out of debt. Talking with a credit counsellor won’t lower your credit score. Only if you ultimately decide on a course of action that includes, a debt management plan, then your score would definitely take a hit. Always keep in mind that getting out of debt is the most important goal. Over time, your credit score will get back as you rebuild your credit subsequently.
Can You Borrow from Your 401(k)?
Many articles suggest you can use your 401(k) to pay off credit card debt. That you can withdraw or borrow money from your retirement account, doesn’t mean you should, except it is your only option at the time, don’t.
At first glance, it looks easy to justify borrowing from your 401(k).ON the long run, If you borrow the money, your interest rate will most likely be lower than what you’ll get with other personal loans. Thus the urgency of caution.
Peradventure you cannot payback within the five-year requirement, there are high-risk penalties and fees. And in the case of job loss, the loan must be repaid by Tax Day of the next year.
If you’re getting a 401(k) match from your employer, don’t joke with that. That’s a huge employee benefit, and you should only take advantage of that if need be. Some of these plans don’t allow you to continue to contribute to your 401(k) if you borrow from it. Consequentially, you also stand to lose your employer’s matching contribution. You’re basically giving up free money, you don’t want right? Be cautious.
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Furthermore, you’ll decrease your retirement benefits account. It might not seem that important if you’re years away from retirement. But the way to have money to spend later is to save money now. This is all we can give you today about Reliable Ways to Consolidate Your Credit Card Debts.