One of the biggest advantages, outside of saving money every month, is the simplicity. In a perfect world, you will have one single payment with a lower interest rate for all of your credit card debts, as you move them to one account. The question, of course, becomes where you borrow the money from? If you consolidate, you must do so wisely as while it can be a great help financially, it could also make a bad situation worse.
Take Out a Personal Loan
One option to clear your credit card debts is to take out a personal loan through a traditional or online lending institution. Quite often, these loans can be a lifeline to simplicity, and more often than not, they offer lower interest rates.
Obviously, the better credit score that you have, the better interest rate you will get with one of these loans, but if you can borrow enough to pay off the balances of your various credit cards and have a monthly payment that is less than the combined payments of said credit cards, a personal loan does make a lot of sense. However, if you do not have very good credit, this may not be an option for you and you may find after you compare personal loan rates that they don’t justify making this move.
Using a Balance Transfer Credit Card
Another common tactic is to use another credit card to transfer your balances to. For example, sometimes, a credit card company will offer you 0% interest rates for a limited amount of time as an introductory offer on a balance transfer. This could get you a few months, as an example, of zero interest rates and can help you pay down your debt quicker. Obviously, if you can pay off the entirety of the debt during the promotional period, you should quickly take advantage of this since the benefits are significant. Even if you are not able to completely pay off your debt during the introductory 0% period, this might still be something to consider. After all, you will be paying interest on a much smaller balance when the introductory period ends.
Make sure that your new card does not charge a balance transfer fee, which could be as much as 3 to 5%. Remember though that some lenders no longer allow this tactic, but there are plenty of them that will. Take the time to do your homework as this could be a viable solution to a very common problem.
Home Equity Loans
A common tactic that many Americans have tapped into in the past is a home equity loan. By borrowing against the value of your house, you typically get a much lower interest rate, and can pay off your debts immediately. One of the biggest problems with this, of course, is that you are putting your home at risk if something goes wrong. Unfortunately, it’s quite common for people to take out these loans and to go straight back to the original spending habits that got them into trouble in the first place. Because of this, home equity loans, while being a significant tool, should be thought of as something that you could consider only if you are willing to put in the work to change your destructive financial habits.
Work with a Non-Profit Credit Counseling Organization
Credit counseling organizations are found across the United States and are non-profit entities that help people with advice and creating plans for paying off their debts. If you would like to consider this option, look for a National Foundation for Credit Counseling accredited organization to work with.
Working with these organizations, you can set up a debt management program or plan. This generally will involve making a payment to the credit counseling company, who will then pay off your creditors. They can even negotiate lower interest rates, at times, on your monthly payments and credit card companies are used to working with them. Quite often though, there is a small fee to get started as well as a monthly service fee. In addition, many of these companies will require that you close your credit cards as soon you pay them off, as these are designed to be life-changing plans, not a simple reshuffling of debt.