We all know that debt can be a real downer, and too much of it can bog us down. The question becomes: how do we deal with the credit card debt we have accumulated over the years?
It would be great if we could just pay off all our cards and never use them again but for most of us, that is not possible. Therefore, how do we deal with credit card debt?
Here are 5 ways to consolidate your credit card debt that you can put into effect right away.
Using a Transfer Credit Card Offer for 0% Interest
If you have several credit cards, it may be time to call the company and ask for a balance transfer offer. What this essentially means is you can transfer all your cards to one card and pay 0% interest on the balance.
This sounds like a great deal. However, but you must know what this will do to your credit rating. If you have good credit, then this should not be an issue for you at all. What could happen is that your credit rating could even improve a little bit. This is because the one card you transfer all your debt to will have a much lower level of debt on it, which means either you will pay it off very quickly, or they will not charge you any interest.
If you have bad credit, this may be an option for reducing interest rates. However, it will not improve your rating. This could hurt your credit rating and affect your ability to get other loans in the future.
You can borrow from an individual who is willing to lend money. Companies such as Prosper and Lending Club have been providing this service. Therefore, you can borrow a certain amount of money. This is usually in the thousands of dollars, by transferring your credit card debt into a peer-to-peer loan. You can do this through a website where you will pay the lender back with interest.
Second Mortgage or HELOC
If you have some equity built up in your home, then this is a good way to consolidate credit card debt. A second mortgage is an additional loan on top of the money that was already lent to you at the time of purchasing your house. Therefore, you can borrow up to 100% or 80% of the value of your home minus all other loans against it.
The total amount you borrow adds on to the first mortgage and you will have to pay both with interest. This option is usually a good choice for those who want flexibility on how they make repayments, as well as those who cannot qualify for a first mortgage.
A home equity line of credit (HELOC) is a type of loan for between $5,000 and $100,000 secured against the value of your house. The advantage to this option is that you can access money anytime with no fixed amortization schedule and it is tax-deductible.
Debt Consolidation Loan
A debt consolidation loan is a fixed-term loan that pays off all your other debts. Therefore, you will only have one monthly bill to take care of. Interest rates are usually lower than credit cards or payday loans. However, it is important to note that the interest rate may also depend on your credit rating.
Debt settlement involves negotiating with your creditors to reduce the amount you owe. This means that they will take a hit on their profits. However, it can be worthwhile if you end up paying 50 or 60% of what you owe.
Some banks and credit unions offer debt consolidation as part of your regular banking services. These can entail no fees at all, compared with debt settlement companies charging a percentage of the debt they settle on your behalf. A possible drawback is that there may be restrictions in place. As a result, you can only submit one application per month to each bank.
Debt consolidation is the process of taking several different loans and rolling them into one larger loan, which is easier to pay back. The five ways discussed here can help you consolidate your credit card debt and make it manageable for your financial stability.