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Credit Card Debt Consolidation: Understanding Your Options

Credit card debt

Credit card debt can be overwhelming, even if you can afford to make the monthly payments on your cards. If you’re juggling debt on multiple cards, credit card debt consolidation can help streamline your repayments and take some of the stress out of the process. Once you consolidate, you make one single monthly payment instead of several. You have a number of options when it comes to debt consolidation. Take a look and figure out which one is right for you.

If Your Credit is Excellent

If your credit score is still high, you may qualify for a consolidation loan that offers a low interest rate, or for a credit card with a low rate that lets you transfer the balances from your current cards. You’ll want to do some research before deciding on either a consolidation loan or balance transfer. Take a look at your credit score. If it’s above 740, you’re likely to get the lowest interest rate possible on a loan. If it’s below 740 but above 680, you might not get the best rate, but you can still expect to receive a decent offer.

Even if you are offered a very low interest rate on a new credit card or personal loan, there are a few other factors to consider. One is the length of time it will take to pay off the debt. In some cases, new cards only offer a low rate for a short period. If the interest rate will increase after six months or a year, make sure you know by how much. You don’t want to consolidate debts from cards that had a 14 percent interest rate only to end up paying 20 percent after a few months. Also read the fine print to make sure there are no fees for transferring your balance or for taking out a new loan. Finally, compare what you would pay if you left your credit card debt alone to what you’ll pay if you consolidate to make sure you’re actually getting a good deal.

If You Own Your Home

You have another option for credit card debt consolidation if you own your home, whether you have a mortgage or not. You might be able to apply for a home equity loan (HEL), use the principal of the loan to pay off your credit cards, then focus on paying off the HEL. Consolidating your debt with a HEL does have risks and isn’t a good option for every homeowner. You are putting your house on the line, which can be particularly risky if you are struggling to pay off your debts. While the interest rate on a HEL is often much lower than the rates on your credit cards, you might also have to pay closing costs and other fees, which can drive up the cost of the HEL.

If Your Credit isn’t So Great

What can you do to consolidate your debt if you don’t qualify for a HEL and can’t get a low interest rate on a credit card or personal loan? In that case, your best option might be to work with a credit counseling agency and explore your options for debt management. With debt management, you make a single monthly payment to the credit counseling agency, and the agency distributes it to the owners of your credit cards.

Credit card debt consolidation can be a DIY process, but help is available if you need it. As with any debt or financial program, carefully read the fine print and weigh the pros and cons before picking a solution.

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