Credit card debt consolidation can be an effective means of paying off a significant amount of credit card debt in a timelier fashion. Rolling all your accounts into one loan, which you can then pay at a lower rate of interest over a fixed period, offers significant advantages. However, there are times when you might be better off maintaining the status quo. With that in mind, let’s take a look at how to know when credit card consolidation will help you.
How to Consolidate Credit Card Debt
The primary methods include special offer balance transfer credit cards and low interest fixed rate bank loans. The latter can take the form of personal loans or home equity products such as cash-out refinancing and home equity lines of credit. The catch with each of these is that they require a strong credit history to qualify for an interest reduction significant enough to make the consolidation worthwhile — in most cases.
Credit card balance transfer — generally speaking, this can be the least expensive means of consolidating credit card debt. You’ll roll all your outstanding balances onto a card offering a special introductory offer of a super-low or zero percent interest rate for a limited amount of time. This window is typically anywhere from 18 to 24 months. Just make sure you can pay off the transferred amount within that time frame. Otherwise, you’ll face a severely elevated interest rate, likely higher than the ones on your existing debts.
Personal loans can be had with no collateral and have the added benefits of a fixed interest rate and predetermined repayment period. In other words, stability and predictability are the primary benefits here. Yes, you’ll encounter loan origination fees and you’ll need a strong credit score to get the best deal, but it’s a viable option under the right circumstances. In fact, this is one of the methods of credit card consolidation help from Bills.com.
Home equity products such as a cash-out refinance, home equity loan, or line of credit can be easier to get, with lower interest rates, because the lender will force the sale of your house if you don’t repay the loan. With this approach, you’ll trade unsecured debt for secured debt, which most financial gurus argue is a bad move.
When to Consolidate Credit Card Debt’s
It’s key to catch an impending problem before it impacts your credit score negatively. This will ensure that you qualify for the lowest possible interest rate, which is key to coming out ahead in a consolidation deal. Yes, you can get a credit card consolidation loan with a lower credit score, but the financial advantage you might have gained will be compromised.
The next thing to contemplate is whether or not you have the cash flow to live up to the loan agreement. Defaulting on a consolidation loan will set your financial position back significantly. This is particularly true if you’ve tapped into your home equity.
You’ll also need to ensure you’ll benefit monetarily from doing the consolidation. You’ll save money overall If you can pay off your credit card debt sooner and at a lower interest rate. Running your particular numbers through a consolidation calculator will let you see how well you can expect to make out. Just be sure to factor in the loan origination fees and/or transfer fees you’ll encounter.
Finally, you must ponder whether or not you can avoid using those credit cards after you’ve zeroed out their balances. Doing so could land you in an even deeper hole — with no consolidation remediation upon which to fall back.
And that’s how to know when credit consolidation will help you.