Credit card consolidation can be a beneficial way to pay down your debts when you're struggling to make the payments on multiple accounts. If you are considering this avenue, you want to make sure you get the lowest interest rate and the best terms available before you proceed. Below are a few different ways to consolidate your loans to achieve one low monthly payment.
You may be able to qualify for a consolidation loan by using the equity in your house as collateral. The advantage of a consolidation loan is you will likely pay less interest than what most credit cards charge. Plus, consolidation loan payments are often lower than the combined total of all your credit card payments.
Caution should be exercised when taking out a home equity loan to consolidate your credit card payments. After all, you stand to lose your house if you can't make the payments. A good rule of thumb is to close all but one credit card account so that you aren't tempted to add even more debt.
Balance transfers are another method to consolidate your credit card bills. Basically, you apply for a card that offers a low introductory rate and transfer all your other balances to that card.
Be aware that this "teaser" rate only lasts for a limited time and will return to the normal interest rate at the end of the introductory period. Before it converts to the regular rate, you can transfer your balance to another card with a low introductory rate.
Using balance transfers to consolidate your credit card debt often brings added costs in the form of transaction fees. Read the fine print to see how much it will cost you to make the transfers from each of the other credit cards. Cards often charge 3-5% of the balance you are transferring. For example, if you transfer $10,000 on a card with a 3% balance transfer fee, it will increase you total debt by $300. On the other hand, a 5% balance transfer fee will increase your total debt by $500. Take this into consideration when choosing which card to transfer you balances to.
Once you transfer your balances, it is very important to make your payments on time, as late payments often raise your interest rate to the normal rate charged. It's also a good idea to take your cards out of your wallet so that you aren't tempted to use them. Failure to do so can leave you even deeper in debt if you rack up new charges. While it may be tempting to close out these accounts, proceed with caution because it can lower your credit score by increasing your debt ratio (you'll have less available credit).
If your credit card debt is out of control, you can lower your payments by up to 57% using a debt management service. These types of services are not for everyone, though. Fees for consolidation services can vary widely. Your credit score may also take a hit when a debt management service negotiates with your creditors. And you will probably be required to close all your credit card accounts when you enroll in debt management.
Before you make a decision, check the company's reputation with the Better Business Bureau. You also need to realistically look at the pros and cons of debt consolidation to determine if this is the right decision for you.
Below are other credit articles that can help you get a grip on your finances.