Consolidate Credit Card Debt: 5 Tips To Overcome Debt
Are you struggling with credit card debt and want to consolidate your debt? This article provides valuable insights on how to consolidate your debts and explores various options available to you.
Whether you’re interested in credit card debt consolidation loans, nonprofit credit counseling, balance transfers, utilizing retirement accounts, or borrowing from friends or family, we’ll guide you through the pros and cons of each approach.
What Is Credit Card Consolidation?
Credit card consolidation refers to the process of combining multiple credit card debts into a single payment. It involves obtaining a new loan or credit card with a higher credit limit to pay off existing credit card balances.
By consolidating your credit card debt, you simplify your repayment process and potentially secure more favorable terms. This includes a lower interest rate or fixed monthly payments. In addition, this approach can help you manage your debt more efficiently and potentially save money on interest charges.
However, it’s important to carefully consider the terms and potential impact on your credit score before pursuing credit card consolidation.
What Is a Credit Card Debt Consolidation Loan?
A credit card consolidation loan is a type of loan you borrow to pay off your credit card debt.
Credit card consolidation loans are helpful to get a piece of your debt paid off. When you get a credit card consolidation loan, you’re taking that money and putting it into one lump sum. They use this amount to pay off your credit card balance in one go.
The credit card consolidation loan terms are very flexible. They can help those with a large amount of credit card debt make it easy on themselves. In turn, they can fix their debt problems.
Additionally, credit card debt relief loans give you the freedom to have a lower fixed rate instead of paying super high interest.
Many people aren’t aware that they can get a credit card consolidation loan and pay off their existing cards with it. The catch is that your credit must be around 660 to qualify.
Some people have already messed up their credit reports and they cannot qualify for credit card consolidation loans. If you are one of these people, there are four more options out there for you.
Nonprofit Credit Counseling
If lenders turned you down when you tried to get a credit card consolidation loan, it’s not the end of the world. Many nonprofit credit counseling organizations can help you out. To add, these organizations can help you pay off your debt as well.
Typically, they can help try to set up a plan for you, to pay off your debt. The company determines your payments once you agree. Then every month, you pay the counseling company. They will be the ones to pay for each of your credit cards.
The counseling company can help lower your interest rate and monthly payments as well. Unfortunately, it is not a free service. Therefore, there will be a small fee to continue their services.
These companies sometimes require that you close your credit card accounts before they assist you. This can and usually hurts your credit.
Get a New Credit Card With an Introductory Balance Transfer Fee Waived
If the credit card consolidation loan didn’t work or you do not want to use a credit counseling option, you can apply for a balance transfer fee to be waived. This option will help you transfer your unsecured debt all onto one lump sum. Then, you pay this balance monthly.
It may be an easier way for you to pay off your debt since some cards start you off with 0% interest. Some charge 3%-10% on amounts transferred. The amount that you owe cannot be higher than the initial credit limit on this card. If a card doesn’t help with your debts after reading about them, you have more options available.
Some retirement accounts will let you take money from your account to help you pay off your debt. One awesome thing about this, there is no credit check for you to be approved. If you are approved, there may be a way to dodge paying the early withdrawal penalty if it all works out.
To put things into perspective, the younger you are, the lesser you can take out. However, there may be a lot of penalties to pay back. If you are under 59 ½, you are expected to pay back the saved money in five years, except if you’re buying a house. Most people warn others from staying away from this option.
If you use your retirement money for credit card debt, your retirement is zeroed out and you start fresh from day one. All over again. Think about how hard it was to get this retirement to start with, you don’t want to start all over, do you? If these options are not acceptable, look at the last one.
Borrow Money From Friends or Family
When all else fails, we can always depend on our family, right? There are positives and negatives with this option. When you borrow money from your friends and family, there’s a different feeling towards them. You need to be cautious in these situations.
With your family or friends, they won’t give you a credit check, however, if you don’t pay it on their terms, the relationship will be at risk. We don’t like to put our family’s finances in jeopardy either, because we see the direct effects. This is one option that we would choose if we had tried everything else.
No matter what you decide on consolidating your credit card debt, you should make sure you are okay with that decision. When picking what you want to do about your debt, try to avoid opening up a new line of credit and hurt your credit score, because once you do this, and you mess it up, there are not many options to get a redo.
Be smarter this time and think it through with your partner and family. You want to make sure you are comfortable with the decision you make regarding your and your family’s financial future.
In conclusion, if you find yourself struggling with credit card debt, debt consolidation might be an option for you. Whether you opt for a credit card debt consolidation loan, nonprofit credit counseling, balance transfers, utilizing retirement accounts, or borrowing from friends or family, it’s important to carefully weigh the pros and cons of each approach.
Take some time to assess the right fit for you and your budget.
Frequently Asked Questions
Does credit card consolidation hurt your credit score?
Credit card consolidation can impact your credit score, depending on how you handle the process. Suppose you consolidate your credit card debt by obtaining a new loan or transferring balances to a single credit card. If you pursue this option, you may notice a temporary decrease in your credit score. Adding a new credit inquiry or a shift in your credit utilization ratio can cause this. However, making timely payments and effectively managing consolidated debt can improve your credit score. Considering the potential short-term impact and weighing it against the long-term benefits of consolidating your credit card debt is important.
Will I lose my credit cards if I consolidate my debt?
Consolidating your debt does not automatically mean you will lose your credit cards. However, how you consolidate your debt may affect your credit card accounts.
When choosing a debt consolidation loan, closing your credit card accounts may be necessary to prevent further debt accumulation. Closing credit card accounts can temporarily negatively impact your credit score, as it lessens your available credit and affects your credit utilization ratio.
On the other hand, If you opt for a balance transfer, you can consolidate your credit card debt onto one card. However, it’s important to manage your credit cards responsibly and avoid incurring new debt on those cards.
Ultimately, deciding to close or keep your credit cards when consolidating debt depends on your financial situation and discipline in managing credit.
It’s advisable to consider the potential impact on your credit score and weigh it against your long-term financial goals before deciding. A financial advisor or credit counselor can offer personalized and valuable advice regarding your financial situation.
What is the disadvantage of debt consolidation?
Debt consolidation offers several benefits, but it also comes with potential disadvantages that should be considered. One drawback is that it may need to address the underlying financial behavior that led to the debt in the first place.
Consolidating debts into a single payment can provide temporary relief, but individuals may accumulate new debt again without addressing spending habits and financial management.
Another disadvantage is that debt consolidation loans or programs may come with fees, interest rates, or repayment terms that can result in higher overall costs in the long run. Additionally, if collateral such as a home or vehicle is used to secure the consolidation loan, there’s a risk of losing those assets if repayment becomes challenging.
It’s important to carefully evaluate the terms, fees, and potential risks associated with debt consolidation before deciding. Seeking guidance from financial professionals can help individuals make good choices based on their circumstances.
Published on February 08, 2019; Updated on May 22, 2019; Updated on June 13, 2023.