The Best Form of Credit Card Debt Consolidation

You never intended for this to happen. In fact, you can scarcely believe it. Purchase here and there, and the next thing you know, you’re stuck with multiple credit cards with varying balances. Putting together a strategy to deal with debt can be challenging, but it is doable. Consolidation may work but you may be wondering, what’s the best form of credit card debt consolidation? Well, let’s take a look.

What is Credit Card Consolidation?

This financial strategy entails using a personal loan to combine multiple credit card balances into one. This streamlines bill-paying since you only have one obligation to keep track of, and with a fixed amount and due date. Hopefully, your consolidation strategy will have a lower APR than what you currently paying.

Personal Loans

You can take out one of these to consolidate your credit card debt. Try your bank, especially if you’re an established customer, or credit unions, which generally are more lenient. 

With online lenders, you can try for loan prequalification, which gives you an idea of rates and terms for which you may be eligible but without a hard credit inquiry that would ding your score. The better your credit is, by the way, the better your interest rate will be. Lenders also consider income, total assets, and total debts; some even look at educational level or job history, and the like.

Some debt consolidation lenders will pay your credit card issuers themselves, saving you the hassle and any temptation to squander the cash. Watch out for high origination fees, though, since they could eat into savings gained from your lower rate.

Balance Transfer Cards

You may be able to find one of those 0% interest cards that issuers offer for a promotional or introductory period, usually between 12 and 18 months. You can shift your high-interest balances onto this card but be sure you can pay them before the promotional period ends, and the regular rate becomes effective. For some, being able to spread payments over a longer time may work best.

Be mindful that snagging one of these babies requires good or excellent credit, so check your credit standing before you apply.

Second Mortgage or HELOC

Using the equity in your home to consolidate your debt is another option, although fraught. That’s because if you default, your house, which your lender will hold as collateral is on the line. Still, getting a second mortgage or using a home equity line of credit is a common method of easing debt woes.

The biggest benefit of this strategy is that, because you have collateral, your interest rate will likely be lower than what you would get with a personal loan, leaving you with lower monthly payments and the ability to pay off your debt quicker.

Peer-to-Peer Lending

The marketplace lending platform Perform is a space for those who are seeking loans, as well for those who are open to investing. Here, the borrower is looking to roll debts into a single loan, while the investor is hoping for a consistent and worthwhile return on investment. The idea is to foster win-win scenarios.

Take Out a 401(k) Loan

As a consolidation strategy, this one isn’t highly recommended. However, it does offer some benefits. To wit, taking out a loan against your retirement fund is a way to get a lower rate than you could with a personal loan, which can help your overall credit. Also, there’s no credit check involved in taking out such a loan, and the debts you erase with the loan will boost your credit score. 

Just be mindful that not only are you subtracting from the fund you’re building for your Golden Years you’re also risking accruing large fees if you can’t repay the loan. Tread carefully.

As you can see, the best form of credit card debt consolidation is the one that’s right for you. Size up your goals and financial situation and pick the best option for you.