Before you consolidate credit card debt the process can seem complicated and stressful. Many are too overwhelmed to take on consolidation themselves. It doesn’t have to be this way.
There are many simple and effective ways to consolidate credit card debt without any extra work. Many have found that they can handle the debt consolidation process themselves, while others prefer to work directly with a debt consolidation counselor.
Debt consolidation is the process of securing a new line of credit to pay off all existing credit card debt. The new loan must be large enough to cover the entire balance on all open credit cards.
By eliminating credit card debt with a debt consolidation loan it is possible to lower interest rates and reduce monthly payments. In addition, consolidating credit cards limits the number of creditors a consumer must deal with.
There are many resources available online that offer debt counseling services. Before talking with any debt consolidation companies review these common loan options.
Here are the easiest ways to consolidate credit card debt:
- Unsecured Personal Loans
- Home Equity Loans
- Low Interest Credit Cards
- Debt Management Programs
Consolidate Credit Card Debt in 3 Simple Steps
Credit card debt consolidation can happen a number of ways. The most common include unsecured personal loans and home equity lines of credit.
There are also options available for consumers with bad credit. When collateral is not available to secure a debt consolidation loan, many have turned to low interest credit cards to solve their financial problems. A little financial creativity can go a long way towards successfully eliminating credit card debt. Smart consumers review all the available options before making the commitment to consolidate credit card debt.
Unsecured personal loans are a low-risk way for consumers with good credit to consolidate credit card debt.
Typically personal loans have a rigorous approval process due to the lack of collateral available to guarantee the loan. To minimize risk lenders will usually only approve loans to borrowers who have excellent credit scores.
While many banks have cut back funding for personal loans there are many other options available online. Today there are online institutions that can provide unsecured personal loans without the fees and overhead normally associated with traditional banks.
Recently peer to peer lending services have been able to provide personal loans for debt consolidation loans at low interest rates.
Although online personal loans normally have above average interest rates, they are more competitive than can be found with a standard credit card. Consolidating multiple credit cards with high interest rates into a single personal loan can dramatically reduce interest payments.
It should be mentioned again that personal loans have the advantage of being unsecured, meaning that in the event of default the debt can be erased during bankruptcy. On the other hand, secured loans like home equity lines of credit and second mortgages require a home as collateral. In the event of default with a secured loan any collateral attached to the loan can be foreclosed on in order to recover any lost assets by the bank.
Home Equity Loans
Homeowners have found financial success by taking advantage of home equity loans to consolidate credit card debt. Using the equity built up in the house as collateral a homeowner can qualify for a loan to pay off any and all consumer debt. Often home equity loans have much lower interest rates than credit cards. Another benefit is that the payments can be spread out over the life of the home loan to greatly reduce the monthly financial burden.
In the event of default on the line of credit the bank can foreclose on the house. This is one of the major drawbacks of converting unsecured credit card debt into secured debt. Unfortunately the additional debt cannot be erased when filing for bankruptcy.
Low Interest Credit Cards
For consumers that are unable to qualify for personal loans or home equity loans a low interest credit card is a perfect alternative. Credit card companies offer low interest introductory periods and zero interest on balance transfers for the first few months after opening a new account. A creative consumer might consider transferring all outstanding debt to a new credit card to reduce the monthly interest rate and minimize the amount of credit card companies they deal with.
By taking advantage of the low interest on the new credit card, more progress can be made towards paying off the principal. A disciplined person could pay off the complete balance while the interest rate is low and possibly save thousands of dollars in potential interest charges. This is a strategy that has given many the opportunity to live a debt free lifestyle but it does come with a large amount of risk.
Carefully consider the alternatives before jumping to consolidate debt onto a low interest credit card.
Next Steps to Consolidate Credit Card Debt
Evaluate the debt consolidation options with your financial goals in mind. Each strategy has its benefits as well as substantial risk. Before you consolidate credit card debt it is essential that you establish a budget and a very clear plan of attack towards paying of credit card debt. Setting a specific timeline and strict financial goals will take you a long ways towards financial freedom. A smart credit card consolidation plan could be your ticket out of debt.