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How do you consolidate credit card debt? That’s a tricky question. Credit card debt can be overwhelming, especially if you’re dealing with high interest rates and balances.  But don’t worry! In this article we’ll discuss a few different methods for tackling credit card debt and hopefully we can uncover one that could work for you. 

What is Credit Card Debt?

Credit card debt is any amount of money that you owe on your  credit card. Credit cards can be a helpful tool to assist in covering upfront expenses by allowing you to pay them off at a later date. However, credit card debt can quickly add up if you’re not careful. The longer you wait to pay off your credit card debt, the more you’ll end up paying in interest fees. So, you could end up paying more than you owe in the long run. If you fail to make the minimum payments on your credit cards, you could experience late fees, increased interest rates, lowered credit limits, and negative effects on your credit score.

What is Debt Consolidation?

Debt consolidation can help people who are struggling to keep up with unsecured debts, such as credit card debts. A debt consolidation loan typically enables individuals to pay off their debts at lower interest rates than those attached to their existing credit cards. However, actual qualification and financing terms on these loans are based on credit score so they can be hard to qualify for if you don’t have good credit.  

How to Consolidate Your Credit Card Debt

If you’re struggling to pay off your credit card debt, consolidating it could help make it easier. There are many ways to do this, depending on your situation – here are a few of them:

Balance Transfer Card

A balance transfer means taking multiple outstanding credit card balances and consolidating them onto one credit card, usually a new one. The benefit of this method is that it allows you to transfer your existing high-interest credit card balances to a lower interest one. This action is called “balance transfer” (hence the name). This can make it easier to tackle your credit card debts by consolidating them into one place. It can also save you money if you’re putting these debts onto a card with a lower interest rate. Interest rates and other financing terms will be based on your credit score. A balance transfer also typically involves a transfer fee that will add on to your overall debt. On average, this fee is 3-5% of the total being transferred. If you can’t afford to pay back what you owe, and you want to avoid paying a balance transfer fee, debt settlement might be a better option for you. 

Home Equity Loan or Line of Credit

A home equity loan or line of credit is a secured loan against your home, meaning your home is being used as collateral to secure the loan. The money you borrow can then be used to pay off consumer debt like credit cards and consolidate them into one loan. While this might sound attractive, there are several drawbacks. In addition to it being a cumbersome and lengthy process, you will be subject to additional fees and most importantly, since your home has been used as collateral for the loan, it will be at risk should you be unable to repay the loan. . Before making a decision like this, we recommend speaking with a certified debt consultant to help determine the best option for your situation. 

401(k) Loan

A 401(k) loan involves borrowing money from your retirement account. In other words, you borrow money from yourself. In most cases this type of loan carries a lower interest rate than borrowing from a traditional lender. However, if you default on paying back a 401(k) loan, the outstanding amount converts to a withdrawal from your 401(k) account and is subject to potentially large penalties. The amount you’re able to borrow with a 401(k) loan is typically limited to 50% of your vested funds. If this is not enough to cover your outstanding debt, there might be better debt-relief options for you.  

Debt Management Plan

Although not exclusive to debt consolidation, a debt management  plan can help you regain control of your finances. Debt management plans can be beneficial for those who are feeling overwhelmed by debt or don’t know where to start to resolve their debt. Through a combination of negotiating with your creditors to reduce interest rates and organizing a repayment plan, you might find relief through this option. However, it is important to note that with a debt management plan you will likely be required to pay an upfront startup fee and monthly administration fees. 

This type of plan will help you pay off what you owe. If you cannot afford to pay off what you owe, debt settlement might be a better option for you. Debt settlement companies negotiate with your creditors to reduce the overall amount you owe, allowing you to become debt-free for less than the total you owe.

Ask for Help

Asking family and friends for help may seem hard, but it could potentially help you get out of debt. It might seem scary or embarrassing to ask for help, but if loved ones have the means to help out, they’re often happy to. Borrowing from a friend or family member can offer favorable repayment terms (usually no interest). However, defaulting on this type of loan carries the risk of damaging personal relationships. If you choose to go this route, we recommend establishing clear terms.

Another downside to this method is that it won’t help prevent you from going into debt in the future. If you’re struggling with debt, it might be better to seek help from a professional debt consultant who can help you handle current debts and make a plan for the future. 

Why Consolidate Credit Card Debt?

If you have several credit cards and are struggling to keep up with the payments or are accruing a lot of interest , consolidating your debts may make sense. Why?  Lower interest rates mean more of your payments go toward the principal amount on your loan or credit card, allowing you to pay off your debt faster. However, as with any debt-relief option, there can also be some drawbacks like incremental fees and increased monthly payments. 

Should I Consolidate My Credit Card Debt?

If you have credit cards with high interest rates or difficult creditors, consolidating them  could potentially offer some relief. However, it’s important to explore all of your debt-relief options before making a decision. 

How CreditAssociates Can Help

If you’re struggling to make your current monthly payments and cannot afford to pay back what you owe, then debt consolidation is likely not for you. It may sound like a great option at first because it can unlock lower interest rates, but it can also be challenging to qualify for, especially if you don’t have great credit. 

If you’re interested in exploring other debt-relief options, call the experts at CreditAssociates to speak with a certified debt consultant who can give you a free personalized debt evaluation and help determine the best debt-relief solution for your situation.  

Common Questions about Credit Card Debt

How can I consolidate credit card debt?

Consolidating credit card debt means replacing the debt on one or more existing accounts with one new loan or credit card. This can help make it easier to keep track of your debt by putting it in one place. It can also help save you money if you’re able to qualify for a lower interest rate on the new loan or credit card. There are multiple ways to resolve credit card debt. Determining the most beneficial method for you depends on what your current financial situation looks like and how strong your credit history is. Speaking with a certified debt consultant can help you find the debt relief solution that’s best for you.

What if I have a lower APR than my credit cards?

Consolidating your credit card debt may be a good idea if the new loan or credit card has a lower APR than your existing credit cards.

What is consolidating credit card debt?

Consolidating credit card debt is when you combine multiple credit card balances into a single monthly payment. However, actual financing terms, like interest rates, will be based on your credit score. If you cannot qualify for lower interest rates, this might not be the best option for you.

What is a personal loan?

A personal loan is a lump sum a borrower receives, with set repayment terms. A personal loan can be used for a variety of reasons, including to consolidate debt and pay off credit card balances. 

What is a balance transfer credit card?

A balance transfer lets you move balances from one or more credit card accounts to a different card. This can be beneficial when moving balances from high-interest cards to one with a lower interest rate. It is important to note however, a balance transfer may involve a fee. 

Should I ask a friend to loan me money?

Depending on how much money you owe and what your overall financial picture looks like, it may make sense to ask a friend or family member to lend you the money. But if you opt for this method, it’s essential to be sure the loan terms and repayment plan are clearly outlined, just as they would be if you were getting a loan from a financial institution.

What are the benefits of a credit card?

Credit cards can be helpful to cover upfront costs, especially for sudden expenses, allowing you to pay them off at a later time. If you’re able to keep up with regular payments, credit cards can also help build your credit score, which can make qualifying for future loans and purchases easier.  

Can I pay off my credit card debt in one year?

It is possible to pay off your credit card debt in one year, but the probability you can do this will depend on a variety of external factors. Things like how much debt you have, what your income is, and what your other debts are can impact the amount of time it will take to pay off your debts. If you’re looking for a debt-relief option that can work quickly, debt settlement might be the right option for you.

How do I consolidate my debts?

There are several strategies to consolidate your debts, including balance transfer cards, home equity loan, 401(k) loan, a debt management plan or even borrowing from friends or family.  The key is to understand your situation, and then set up a plan that will allow you to pay off your debts.  

How do I consolidate my credit card debts?

One of the most common ways to consolidate your credit card debts is to contact your bank or credit union and request a debt consolidation loan. These loans can sometimes be challenging to qualify for. Another option is to use a balance transfer to get all of your outstanding credit card debts onto a single, low-interest credit card. If you don’t like the terms or are looking to reduce your outstanding debts, debt settlement might be a better option for you.

What’s the difference between a personal loan and 401(k) loan?

Taking out a loan against your employer-sponsored 401(k) is a way of getting a lower rate than a personal loan, and generally, this strategy can help your overall credit profile. Personal loans can also be harder to qualify for. However, if you do not pay off your 401(k) loan, you can be subject to large penalties.