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How To Consolidate Credit Card Debt | Credit card news and advice

If you have debt on multiple credit cards, it probably feels like you’re walking on water in the ocean. On the one hand, you are stressed about making several payments on time. You might also be stressed out about having enough cash to even make the payments given the coronavirus crisis.

One option for getting things on track – and saving money – is to consolidate your credit card debt. With consolidation, you would be making one payment per month instead of four or five. And I hope you will even get a much lower interest rate which will save you money.

If that sounds like a relief, read on for five ways to consolidate your credit card debt:

Use a balance transfer credit card

If your finances are still in good shape, a credit card with balance transfer may be right for you. You will need a good to excellent FICO score to qualify for the best balance transfer cards. Currently, the major balance transfer credit cards offer annual percentage rates of 0% with introductory periods of 12 to 21 months. If you qualify, this is a great opportunity to pay off your debt without paying interest.

As long as your credit limit is high enough to cover the full amount you want to transfer, you’re in business.

But you need to follow two basic rules to stay out of trouble. First of all, you need to determine your monthly payment in order to pay off your debt before the end of the introductory period. If your new card has a balance transfer fee, which can be up to 5%, you must include these fees in the total amount you have to repay.

Here’s an example: let’s say you transfer a total of $ 10,000 to a card with an 18 month introductory period and a 3% transfer fee. You will need to pay $ 572.22 each month to repay it before the introductory period ends ($ 10,300 / 18 = $ 572.22).

At the end of the introductory period, you will start paying interest at the “benchmark rate” on your balance. If you can’t pay off the debt before the 0% APR ends, find out how much you can pay per month to reduce your debt.

The second rule is that you cannot use your balance transfer card for new purchases. Sometimes your new balance transfer card will also offer a 0% introductory rate on purchases. Do not be seduced by this offer. You can use this card for new purchases when you’re not in debt and the COVID-19 crisis is behind us.

Get a debt consolidation loan

Although many people try to cope with reduced income, if you are in a position where you can start reducing your debt, consolidating multiple credit card balances into one payment per month can save you time. and money.

You won’t get a 0% APR like you would with a balance transfer card, but you will likely get a better rate than you currently get on your credit cards. And best of all, you will get a fixed rate.

No matter where you are applying, having a good credit score for the best rates helps, but lenders look at other factors as well. For example, a lender examines your credit report, debt-to-income ratio, employment history, and income.

But even if your credit score is low, go ahead and do your research to see if you can find lower rates than you currently have on your credit cards.

Discover peer-to-peer loans

Another option for a personal loan is the loan between individuals. P2P loans do not come from traditional lenders, such as a bank. Each platform is a little different, but P2P websites basically match borrowers with people who want to invest their money by giving you a loan.

The good news? If your loan is approved, the rates can be quite low. The bad news? It can be difficult to get approval. If you get approved with a fair credit score, your interest rate could be high.

Keep in mind that P2P websites work differently and have varying requirements for credit scores and other factors. Be sure to read the FAQ section so you understand how each company handles loans and what the terms are.

Work with a credit counseling agency

What if you are in so much debt at this point in the coronavirus pandemic that you are not able to make a monthly installment payment? You’re not alone. So many Americans are looking for a financial lifeline right now.

Even if you check out debt consolidation options and don’t get the approval, you still aren’t trapped. Do not hesitate to contact the National Foundation for Credit Counseling. You can talk to an advisor for free and discuss options to help you get out of debt.

Get a home equity loan or line of credit

If you have high interest credit card debt, it is possible to get a home equity loan and use the amount to pay off your credit card debt. Interest rates for those with good credit can be quite low.

With a home equity loan, you get a fixed amount and the loan is secured by your home. You will have a monthly payment over a fixed period. The wrong side? If you can’t make the payments, you could lose your home.

A home equity line of credit is different from a loan. A HELOC is similar to a revolving line of credit. You borrow as much as you need (within your credit limit) and make payments on the amount you borrow. The wrong side? If you can’t make the payments, you could lose your home.

I don’t recommend this option unless you have a very stable job situation and you have a healthy emergency fund. Seriously, for most Americans, now is not the time to risk losing your home.

Consolidation of credit card debt during the COVID-19 pandemic

According to the 2019 Consumer Financial Literacy Survey conducted for the NFCC, nearly 40% of American adults have month-to-month credit card debt. It was before the coronavirus crisis hit us.

Consolidating your credit card debt can help you stay afloat right now. If all goes well with your household income, you might even be able to get out of debt before it’s all over. Whichever option you choose, make sure you don’t increase your debt. Remember, the credit card or loan you got is used to get you out of debt. Don’t add to your debt with purchases you don’t need to survive right now.

But if after researching your credit card debt consolidation options, you feel hopeless, you still have options. Contact your credit card issuers and ask for help. Federal law can help you protect your credit now, but call before you miss any payments.

And don’t forget that the National Foundation for Credit Counseling can help you too. If you’ve ever missed payments and your credit card issuer can’t do much to help you, contact the NFCC today. It takes courage to ask for help, so don’t view it as a weakness. We’ll get over that, but for now, do whatever it takes to protect your finances until this crisis begins to pass.


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