Credit card debt is a black cloud that hangs over your life. You can pay this debt off faster if you take the separate balances and consolidate them to tackle it as one payment. Here are five tips to help you to consolidate your credit card debt using a variety of different options.
Home Equity Loan or Line of Credit
If you are lucky enough to own your home, tapping into this equity can be one of the smartest and easiest ways to pay off debt. A home equity loan or line of credit typically offers lower interest rates than the other debt consolidation options. This is generally a good idea if you have a good amount of equity in your home, do not plan on moving anytime soon, and live in a stable housing market.
A home equity loan is a lump-sum loan that comes with a fixed interest rate. Conversely, a line of credit uses a variable interest rate that is similar to a credit card. You will want to be careful with this type of option because the loan is secured by your home, putting it at risk if you are not able to keep up with the payments.
Balance Transfer Card
One of the most popular ways to consolidate your credit card debt is to use a balance transfer card. These cards come with a 0% introductory APR period, allowing you to pay off bigger chunks of the balance at a faster clip. Most of these introductory periods last 1 – 2 years.
You will need good credit to qualify for this option. It is also important to keep in mind that the higher APR will go into effect after the introductory period is over. It is a good idea to calculate the amount of money that you will save by not having to pay interest to make sure that this is a good strategy for your needs.
Payday Loan Consolidation
The payday loan industry preys on people who are desperate for quick cash. While the occasional payday loan can help in a pinch, it is easy to fall into the trap of relying on this strategy. It does not take long to find yourself in a hole that you cannot climb out of without turning to the professionals.
A payday loan debt consolidation program will help pull you out of this debt, improving your overall financial picture in the process. A reputable program will begin paying off your lenders right away, negotiating the best rates for you. It is much easier to pay down your debts when they are consolidated into one single payment.
Credit Card Consolidation Loan
There are also many programs offered through credit unions or banks that will help you to consolidate your credit card debts through the use of an unsecured personal loan. Borrowers with excellent credit will generally qualify for a low interest rate. Many lenders will also offer direct payments to the creditors, making it easy to wipe off these debts.
This may be a good option if you already have a strong relationship with a bank or credit union. You can also look into the many online lender programs. Be sure to shop around for rates and special features before you sign on the dotted line. With so many different borrowing options, you want to make sure that you understand all of the fine print.
If you have ruled out all possible strategies, you may want to consider taking out a loan against your 401(k). Unlike other practices, this will not impact your credit score. However, you will face significant penalties and fees if you are not able to repay this loan.
Taking out a loan against your nest egg should be a last resort option. You should only consider this if you have a hefty amount of money in this account and your current job is secure. This is also not a good choice if you are nearing your retirement age.
By looking at the pros and cons of all of these options, you are sure to find the best choice for your personal needs and specific financial situation.