Credit cards are very convenient financial tools but the ease of use makes it easy to accrue unmanageable debt fairly quickly. Consolidating your various credit card debt into one single loan can be a smart way to ease the load if you find yourself grappling with extreme debt.
The ability to hold more than one credit card can be both a convenience and a potential financial disaster. Not only do credit cards attract high interest rates and fees but if you have more than one card, following up on multiple monthly repayments can be a tedious task. Consolidation, which combines your existing credit card repayments under one plan is a good way to ease follow-up on your monthly payments while also saving you some money. There are many ways to consolidate your credits, and we will discuss some of the more common ones in this article.
Using a Personal Loan
Personal loans attract lower interest rates than credit cards hence taking a personal loan to pay off existing debt may be a good approach to take. As long as your financial streams allow you to repay the lender of the personal loan without undue strain then this route could help to ease your debt burden significantly. If your credit rating is very poor, it may be hard to find a personal loan with better terms than your credit cards.
Debt consolidation loan
Some banks, debt consolidation companies and non-profit financial institutions offer loan packages specifically meant for loan consolidation. If you are able to find an offering of this type without extra fees or interest rates that may inflate the debt size, you might be well served by taking it on. Prudent research on the companies giving these products and the specific terms can help you to avoid scams, with many unscrupulous dealers looking to fleece people in bad debt situations.
Transferring your Credit Card Balance
A balance transfer allows you to move one or more card balance and debts on to one credit card. In order to qualify, your credit card limit must be high enough to cover the balance you are transferring. Although your overall credit limit is likely to suffer, a new card that has lower rates will save you money. Transfer initiation fees and other costs may apply, so it is important to look into the contract terms carefully. Many credit transfer deals offer a promotional window within which you pay no interest if you repay the full amount without defaulting on monthly instalments.
Borrowing Money from a Loved One
If you can get a friend or family member to lend you the sum you need to pay all your credit card debt, you might be at a great advantage over depending on other traditional loans. Most likely, you will not have to pay interest to the lender and the personal relationship may give you more leeway to negotiate the repayment agreement. However, the repayment period is likely to be shorter than what financial institutions offer, and failure to repay might jeopardize the lender’s finances.
Withdrawing your Savings
If your credit card debt is extremely burdensome, it might be financially sound to withdraw money from your savings, retirement account, or life insurance policy where allowable. Withdrawing the money means that you forego any interest earnings that your savings might have made you, and you may have to accept additional charges. This option therefore jeopardizes your financial wellbeing during your old age, and should only be used for extremely dire situations. Some 401(k) schemes and life insurance providers can extend you a loan against your current savings after which you repay in a given period. This can be a great option if you are expecting increased revenue streams in the near future.
Consult a Credit Union or Debt Counselling Agency
Many such institutions will help to set up a debt management plan for you by renegotiating with the credit card issuers for lower interest rates and accrued fees forgiveness. They will also help you manage your household budget so that you can free up more money to repay your credit card debt. This approach will help to save you money but it involves a long commitment to the debt counsellor, failure to which you might be dropped and slapped with additional fees. There is a big advantage to this option as credit unions generally offer lower interest rates and may have specific products for people with bad credit.
1. https://www.thebalance.com/five-ways-to-consolidate-debt-on-your-own-960613 2. https://www.thebalance.com/credit-card-balance-transfer-basics-960195 3. https://www.creditkarma.com/credit-cards/i/ways-to-consolidate-credit-card-debt/ 4. https://www.thepennyhoarder.com/debt/credit-card-debt-consolidation/?aff_sub2=best-bank-promotions 5. https://www.debt.org/consolidation/credit-card/