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Expert Tips on How to Consolidate Credit Card Debt

A woman with multiple credit cards needing to consolidate credit card debt.

The average American has an average of 3.0 credit cards, according to Experian's 11th Annual State of Credit Report. Many people have credit cards because these pieces of plastic are convenient payment options that enable them to shop effortlessly. With these cards, you can buy them at the moment and pay later in installments. Here are a few tips to consolidate credit card debt.

Multiple Credit Cards: A Curse in Disguise

While having multiple credit cards helps you afford your everyday purchases, their convenience can also encourage a detrimental habit of excessive shopping. This unhealthy habit has brought about financial disaster for many individuals and families, who end up accumulating a high amount of debt and messing up their credit scores.

A recent report reveals that the average household credit card debt stands at $5,315. If you're having multiple credit cards and would like to escape the dark cloud of debt hovering over your head, there's a way that promises a happy ending: consolidating credit card debt.

What It Means to Consolidate Credit Card Debt

Debt consolidation simply means the act of taking out a new loan to pay off other debts. Credit card debt consolidation, therefore, is the act of taking out a loan large enough to pay off all your credit card debts.

What do I stand to gain by consolidating my credit card debt? You ask. Well, this is a sensible financial strategy that will roll your multiple credit card debts with different payments, due dates, and interest rates into a single payment. Consequently, you will be able to calculate the installments easily, pay off your debt in a timely manner, and improve your credit score.

Expert Tips on How to Consolidate Credit Card Debt

Having multiple credit cards encourages the habit of excessive shopping. Here are a few tips to consolidate credit card debt.

4 Ways to Consolidate Credit Card Debt

There are several ways of consolidating credit card debt to reduce monthly payments, and the best way to consolidate will depend on how much debt you have, your credit score, and other factors. The following are four ways to consolidate credit card debt along with their pros and cons:

1. Refinance With a Balance Transfer Credit Card

A balance transfer is a type of credit card transaction in which you move the money you owe from one credit card to another that charges a lower interest rate. When choosing a balance transfer credit card, you should consider several factors such as the transfer fees you have to pay, availability of purchase offers, and the credit limit, among others.

Pros

  • Consolidates your credit card debt into a single, manageable payment.
  • Many of the balance transfer cards come with interest-free periods, ranging from six to 18 months.
  • Allows you to pay off high rate credit cards to low-interest ones, enabling you to save money and get out of debt faster.

Cons

  • The 0% interest offer lasts for a limited time.
  • Although some cards offer no-fee transfers, most cards charge between 3% and 5% of the transfer amount.

Note that refinancing with a balance transfer credit card is recommended only if you have good to excellent credit. That's the only way to qualify for the low-interest rate and the 0% interest offer.

2. Apply for a Personal Loan

A personal loan is a form of loan that you can use to achieve different financial goals, including covering personal expenses, making big purchases, and consolidating debt, among others. Personal loans can also be secured, meaning you need collateral to borrow money, or unsecured, with no collateral needed.

Pros

  • Helps you consolidate multiple credit card debts into a single, lower-cost monthly payment.
  • Total interest paid is usually lower.
  • Helps you build credit if you repay the loan promptly.
  • Many personal loans offer flexible borrowing limits.

Cons

  • Personal loans attract fees and penalties.
  • Could lead to more debt.
  • Lower interest rates are not guaranteed, especially if you have a poor credit score.

When applying for a personal loan, be sure to consider factors such as the interest rate, applicable fees, repayment terms, borrowing limits, and collateral requirements.

Helps you consolidate multiple credit card debts into a single, lower-cost monthly payment. Total interest paid is usually lower. Helps you build credit if you repay the loan promptly. Many personal loans offer flexible borrowing limits.

3. Apply for a Home Equity Loan

A home equity loan is a type of loan secured by your home. This means that you borrow against the equity of your home, which is basically the difference between the amount you owe on your mortgage and the current market value of the home. You can then use the home equity loan for nearly any purpose, including consolidating your credit card debts.

Pros

  • It consolidates your credit card debt into one monthly payment, reducing your odds of missing a payment.
  • Most home equity loans come with a lower interest rate as the loan is secured by your home.
  • While credit card interest is not tax-deductible, interest paid on home equity loan products may be tax-deductible.
  • Most home equity loans have longer repayment periods.

Cons

  • If you default on your new home equity loan, you may face foreclosure.
  • If your home's value plummets, you could end up owing more than it's worth.
  • You may have to pay upfront fees, such as a new appraisal for your home.

A home equity loan may be ideal for you if you have significant equity available in your home, typically at least 15-20%.

4. Set Up a Debt Management Plan to Consolidate Credit Card Debt

If you're struggling to pay your credit card debt but don't qualify for other debt consolidation options due to low credit, setting up a debt management plan might be a good idea. Unlike other credit card consolidation options, debt management plans don't affect the credit score. If you decide on this option, you'll make one monthly plan to a debt management agency, and it will pay your creditors on your behalf.

Pros

  • You only need to make one monthly payment.
  • You may be able to secure a lower interest rate.
  • Doesn't require a high credit score to qualify.

Cons

  • Startup fees and monthly fees apply.
  • Not all credit card companies participate in debt management plans.

You're probably wondering if a debt management plan will help raise my credit score? The truth is that getting into this arrangement can negatively affect your credit score. However, if you include a number of older credit card accounts on a DMP, your credit score is likely to drop in the short term as the average age of your accounts drops.

Nevertheless, the negative impact a DMP could have on your credit report may be minimal compared to your long-term positive impact of paying off your credit card debt.

Get a Debt Consolidation Loan from PrimeWay Credit Union
If you're burdened by high-interest credit card debt, you can uncomplicate your life by consolidating that debt with PrimeWay Credit Union. We are a credit union in Houston, Texas, that's dedicated to helping people navigate life's financial challenges and opportunities, so they can enjoy the financial freedom they deserve.

With our debt consolidation loan, you will be able to consolidate and save in simple steps. We offer debt consolidation loans with rates as low as 1.99% APR for 72 months. You can then pay off your debt with just one simple payment per month, and likely pay less on interest.

Are you ready to achieve financial freedom with a debt consolidation loan but don't know where to start? Contact us today and a representative from our Virtual Retail Center will respond to you

Author Bio

Laurie Masera Garza

Laurie is a digital marketing and social media maven who has more than 15 years of interactive multi-media experience under her belt. When she is not rocking the social media atmosphere, Laurie loves to find Houston’s hidden dining gems, but ask her about tacos. She loves tacos. In her spare time, Laurie loves creating, whether its art or memories.

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