Face it: you have been overtaken by high-interest credit card debt. But you’re certainly not alone, and you do have options. You may have heard of consolidation, but you’re tired and stressed, and at this point you just want to know: what is the easiest way to consolidate credit card debt? Let’s take a peek.
Credit Card Debt Consolidation
This is a financial approach that involves taking multiple credit card balances and combining them into a single monthly payment.
The only way this strategy makes sense is if you can snag a lower rate on the new debt than what you’re paying in the aggregate on current obligations. But if you do get a lower rate, you can really save some money. Your payment can also become more manageable.
The best way – which is often the easiest way – for you to consolidate hinges on factors such as your debt load and credit score. Here are some options:
Balance Transfer Card
This involves transferring credit card debt to a credit card that charges no interest (and often, no annual fee) for an introductory period, generally 12 months or more. To qualify, you’ll need good or excellent credit, which is at least 690 on the FICO scale.
Card issuers commonly charge a one-time balance transfer fee of 3% to 5% of the total transferred. Prior to picking a card, figure out whether the interest you save in the long run will offset the cost of the fee.
Try to wipe out your balance before the 0% promotional period expires, since any leftover balance will be subject to the regular credit card interest rate.
Credit Card Consolidation
This entails getting a loan from a bank, credit union, or online lender to cover your unsecured debts – mostly high-interest credit cards. Again, you want the loan’s interest rate to be lower than what you’re shelling out for existing debt. This is key among the tips for easy credit card consolidation at Bills.com.
Credit unions are structured to prioritize members, so you may have success there. If you have good credit, you might want to try your bank, which may be able to offer larger loan amounts and rate discounts. Eligibility is usually tougher, though.
With online lenders, you can usually prequalify without wounding your credit score. Doing so also gives you an idea of what loan rate, amount, and term you likely can get after you officially apply.
Credit consolidation also streamlines bill paying since after you go through the process, you’ll only have one bill of the same amount monthly.
Home Equity Loan or Line of Credit
If you are a homeowner, you might be able to take out a loan or line of credit on the equity in the property and leverage it to eliminate credit card debt. The loan carries a fixed interest rate, while a line of credit has a variable rate.
Because your house serves as collateral, you’ll probably get a lower interest rate than you would with a consolidation loan or balance transfer card. The big risk here, of course, is that default puts you in danger of losing your home.
It’s not recommended to tap into your employer-backed retirement fund such as a 401(k). Only consider it after you’ve run out of options.
One thing about this strategy, though, is that it stays off your credit report. But the negatives are nothing to sniff at: failure to repay will result in a big penalty in addition to taxes on the unpaid balance. The loans are also usually due in five years.
This involves rolling multiple debts into a single monthly payment at a lower interest rate and creating a three- to five-year repayment plan. Debt management best suits those who are having a hard time eliminating credit card debt, but aren’t eligible for other solutions due to credit issues. This option doesn’t affect your credit score either.
So, what’s the easiest way to consolidate credit card debt? The easiest way is usually the best one that suits your situation. Pick the best program for you and stick with it. You’ll be back on your feet in no time