Best Way To Consolidate Credit Card Debt

One of the financial problems that often occurs is how to reduce and pay off credit card debt. Credit card debt continues to be a slow-motion disaster for millions of Americans. In the third quarter of 2021, Americans had $800 billion worth of credit card debt, which is estimated to be 3.2% of that backlog ending in major delinquency, according to the Federal Reserve Bank of New York. And given the ultra-high interest rates of the credit card industry, it can be hard to catch up once you're late paying. What to do, which is to find the best way to consolidate credit card debt.

Picture: Forbes.com

If you feel your efforts to pay off your credit card debt are unsuccessful, debt consolidation can combine all your credit card balances into one monthly payment, ideally with a lower interest rate.

What's The Best Way To Consolidate Credit Card Debt

There are consolidation strategies to explore that can provide the best way to consolidate credit card debt, as follows:

1. Balance transfer card

Best for those with high credit scores who can repay their debts in 1 to 2 years. Balance transfer credit cards combine your existing credit card debt into one card with one major benefit: low introductory rates. Most offer a 0% introduction to APR for balance transfers between 12 and 24 months, giving you a long time to pay off your debts without worrying about interest. Balance transfer cards are often charged for each balance transferred – usually between 3% and 5% – which can add up a bit when transferring large balances.

2. Debt Consolidation Loans

Debt consolidation loans are unsecured personal loans that offer a lower fixed interest rate than most credit card APRs and repayment terms spread over several years. This type of loan may be a better option for those who cannot qualify for a balance transfer credit card with an introductory APR of 0%. You can even pre-qualify for a debt consolidation loan without affecting your credit score, allowing you to decide whether this method of debt consolidation is right for you.

Credit unions, banks, and online lenders typically offer debt consolidation loans – debt consolidation loans from credit unions typically have better interest rates and more flexible loan terms than other lenders. Shopping for debt consolidation loans can help you find the right terms for your debt situation.

3. Home Equity Loans, Home Equity Credit Lines (HELOC), or Refinancing

Homeowners can use home equity loans, home equity lines of credit, or refinancing to consolidate their debt. A home equity loan is a second mortgage taken against the equity you have built in your home that provides a certain amount of cash at a fixed interest rate. Home equity lines of credit, or HELOC, are also based on your home equity, but function more like credit cards, offering a revolving line of credit that you can access when you need them. With HELOC you only pay back the withdrawn amount plus interest. And if you have enough equity in your home, you can use repayments to roll your credit card debt to a much lower interest rate.

4. Credit Development/Debt Consolidation Program

Credit counseling services can help you understand your finances and how you get credit card debt. They also help you make plans to pay off your debt, including a debt consolidation program. Some non-profit credit advisory services offer their services for free or for a small fee. Credit advisors can also help you negotiate lower interest rates and fees.

5. 401(k) Loans

If you have an employer-sponsored retirement plan such as a 401(k), you may be able to take out a loan of as much as 50% of your balance to pay off existing debts. There are no credit checks involved and interest rates can be lower than other methods of debt consolidation. 401(k) loans typically have a five-year repayment schedule, but the total amount of the loan plus interest will mature if you lose or quit your job.

Hopefully, this information about the "best way to consolidate credit card debt" will be useful for you.

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