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Best Ways to Consolidate Credit Card Debt Effectively

by Fawad Malik

If you have multiple credit cards in your wallet, struggle every month to make minimum payments, and facing financial stress, debt consolidation could be a good option for you to move things around.

Credit card debt consolidation is the process of taking the balance of multiple credit cards and combining them into a single monthly payment with no or lower interest rate than the actual debt. This combines all your debts into easily manageable payments while reducing interest costs and shortening the payoff period as well. In simple words, consolidation of debt enables you to pay off debt faster while reducing interest payments too.

The article reveals some of the most effective ways to consolidate and pay off credit card debt proficiently.

Debt Management Program

A debt management program is a great tool to consolidate credit card debt, save on interest payments and create an affordable monthly payment to pay off debt as faster as possible. Such programs are usually offered by credit counseling agencies. Their financial expert analyzes the current financial situation of a consumer and offers advice on which debt management program is suitable to individual debt repayment needs. Furthermore, they also provide educational material and advice on how to prevent falling into debt again.

Credit Card Balance Transfers

Transferring balances of multiple credit cards to a single card with a 0% introductory APR rate is another way to consolidate credit card debt. It is the simplest and DIY consolidation to opt or if you have a good credit score to qualify for a balance transfer credit card. Companies offer balance transfers on new cards to sell more cards. Such cards usually come with a 3-5% transfer fee and a 0% introductory APR period that expires after a specific period of time (usually 12-18 months). This means you should pay off your balance before the 0% period ends. Otherwise, you will be charged with a higher interest rate once the 0% interest period expires.

Personal Loans

Getting a personal loan is another good way to turn multiple balances into one monthly payment. Since personal loans don’t require collateral and are available through credit unions, online money lenders, and banks, they could be the easiest way to consolidate and pay off your debt quickly. You can also get one from your family or friend. A personal loan allows individuals to convert high-interest debts into one monthly payment with a relatively lower interest rate even without having good credit scores. Personal loans could be secured or unsecured. Consumers with poor credit scores can apply for secured loans as they require collateral.

Peer-to-Peer (P2P) Loans

P2P or peer-to-peer lending is a process in which borrowers are matched online with investors who lend money to get a solid return in exchange. P2P lending can be used for a variety of purposes including consolidating multiple debts. The entire process of P2P lending is online and there are no institutes involved to talk about your debt. Lending Club and Upstart are popular P2P lending sites. You can start and complete the process just by using your tablet PC or laptop. There is no collateral required in P2P lending because they are unsecured debts. Borrowers agree to make monthly payments that are drawn automatically from their accounts.

Taking out a 401(k) Loan

Taking out money from your 401(k) plan is another best way you can consider consolidating your debt on relatively lower interest rates. Borrowing money against your retirement plan should comply organization’s rules, limits, and the process. The best thing about using your 401(k) plan is that you make monthly payments via payroll deduction to pay off debt efficiently. However, you should consult with the employee benefits administrator to compare payment terms and other details to make an informed decision.

Conclusion

If you struggle with several monthly payments and have high-interest debts such as credit card payments, then debt consolidation can work well for you to help repay at lower interest costs. However, you should consult with a credit counseling agency or balance transfer credit card company to choose the right and affordable option.

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