Accumulated credit card debt is easy to acquire but challenging to get rid of. Consumers having both great and poor credit sometimes run into mounting bills and high monthly payments. There are other times when consolidating your credit card debt is simply a matter of being financially logical. Better interest rates are almost always available through newer card companies or promotions run by well-established credit card providers.
There are many proven and effective ways to consolidate your credit card debt. There are also alternate methods perhaps not thought of before today. Whichever method you choose, consolidating your credit card debt to improve your financial situation and life overall is an important, priority decision. Read ahead for information about the top 5 ways in which to consolidate your credit card debt today.
Choosing from the Top 5 Ways to Consolidate Your Credit Cards
The best ways in which to consolidate your credit card debt all have positives as well as potential risks. Choosing the best method for your situation depends significantly on your credit rating and FICO score. It also involves thorough research and study of all terms related to the loans/programs into which you are entering. For example, some credit card consolidation loans charge origination fees, which could potentially negate the initially perceived benefit of taking out the loan. When handled properly, the choice to consolidate your credit card debt offers significant benefits and/or relief. The top 5 ways to consolidate credit card debt are:
1. Transfer Your Balances to a Better Credit Card.
2. Home Equity or Secured Personal Loan.
3. Unsecured Personal Loan.
4. Apply for a Debt Relief or Debt Management Program.
5. Borrow Against a Life Insurance Policy.
1. Transfer Your Balances to a Better Credit Card
Many credit card companies want your business, simple-and-true. As a means of acquiring your business, promotions are run offering zero percent interest on balance transfers made onto their credit cards from your previous accounts. Credit checks are run and eligibility is almost always dependent on having a qualifying credit score. Too many credit checks within a short amount of time results in lowering your credit score, so be careful with the amount of applications submitted. At the same time, most balance transfer and debt consolidation programs run prequalification soft credit checks. While a hard credit check digs deeper into your history and has a high potential of affecting your FICO score, a soft credit check merely generates an estimated rate quote for your consideration.
Transferring your balances to a credit card with lower and/or zero interest promotions saves you a lot of money, both short and long-term. A lower interest rate on your consolidated balances saves money over the length of your outstanding debt by reducing the amount of finance charges paid until the balance is settled in full. Zero interest balance transfers offer no finance charges on balances paid off within predetermined amounts of time. Being able to pay off your balances in full before interest accrues is ideal, but not always manageable. Reducing the amount of balance on which interest is charged still creates a huge savings. The two best credit cards offering eighteen months of zero percent interest on balance transfers are:
2. Home Equity Loan or Line of Credit
Homeowners with equity in their homes and also experiencing high credit card debt have the potential to take out home equity loans or lines of credit against the available equity of their homes. These loans are secured due to accrued home equity, and interest rates are therefore potentially lower pending qualifying credit ratings/scores. The downside of a home equity loan is the reduction of equity in the home, which reduces the ability to finance home improvements or home-based emergencies in the future. Conversely, a major benefit of a home equity loan for consolidating credit card debt is your credit score might not need to be high in order to qualify in general. However, the lowest annual percentage rates (APRs) on this type of loan are usually only offered to borrowers with higher FICO scores.
A HELOC (Home Equity Line of Credit) is another potentially low-interest way to consolidate credit card debt. This type of financing is categorized as revolving credit. This means every payment made reduces the amount of debt owed, while simultaneously increasing the amount of credit available. APRs on HELOCs are frequently lower than those on other secured loans, making them a more attractive alternative method of consolidating credit card debt.
3. Unsecured Personal Loan
Unsecured personal loans are available for a wide variety of purposes pending applicable approval. These types of loans are also some times restricted for specific purposes, such as the consolidation of credit card debt. Borrowers with the highest FICO scores and credit ratings benefit the most from this type of loan due to the lower APRs offered to those accordingly qualified. No collateral is required for this type of loan, as verifiable income, employment history and credit history comprise the essential qualifying factors. Unsecured personal loans occasionally have origination fees. A significantly high origination fee potentially negates some or all benefits and savings. Be aware of long repayment structures as well. Lower finance charges paid over a significantly longer term also potentially negate some or all benefits and savings.
4. Apply for Debt Management Program
Debt management programs employ credit counselors to help manage excessive credit card debt and reduce it to a manageable, affordable monthly payment. These types of programs combine multiple credit card debts into one lower monthly payment, payable to the debt management program company itself. Employees working for debt management companies also speak to your creditors on your behalf, negotiating the best possible terms. Payment plans are some times drawn out over significantly longer periods of time, resulting in lower monthly payments and instant financial relief, but not necessarily less finance charges paid by you in the end. There is also the possibility of being unable to open new revolving debt accounts until all current debt assimilated into the debt management plan is paid in full. If monthly credit card bills are overwhelming, your credit rating is low and instant relief is needed, a debt management plan might be the best option for you. In the future, as your FICO score increases, it is possible to further refinance this type of program to a lower interest situation.
5. Borrow Against a Life Insurance Policy
Most life insurance policies offer the ability to be borrowed against once certain terms and conditions are met. The cons of this method involve losing the value of the policy and therefore the amount of benefits to your survivors. For example, cashing out the policy in full eliminates its post-life benefits, while partially cashing it out reduces them accordingly. Cons also potentially include owing taxes on the amount borrowed from the policy. Borrowing against a life insurance policy usually requires no credit check, which is often a significant benefit. Requirements are typically lenient and limited to the cash value of the policy matching or preferably exceeding the amount being borrowed. Finance charges involved in this debt consolidation method are also low or non-existent. It is also possible in some situations to not have to pay back the money withdrawn against this type of policy at all. For people with higher value life insurance policies or no remaining survivors for which to be concerned, borrowing against a life insurance policy is an intelligent and affordable way to consolidate credit card debt.