How to Consolidate Credit Card Debt to Simplify Your Monthly Payments
When you have credit card debt on multiple cards with more than one lender, it can seem difficult to keep track of your payments each month.
Consolidating credit cards can be an option to reduce the stress of multiple loans. Debt consolidation involves combining your debts from multiple lenders into one loan, usually at a lower interest rate. Essentially, you ask a lender – sometimes a credit card, sometimes a bank – to redeem your multiple loans, and you agree to pay the lender back on their terms.
The main advantage of debt consolidation is that after consolidating you only have one payment to make each month instead of researching the information for a handful of lenders. Plus, you may be able to consolidate your debt at a lower interest rate than the original loans (or at least some of them) and ultimately save more on interest payments over time.
How to Consolidate Credit Card Debt
1. Know the numbers
If you want to consolidate credit card debt, you need to know the numbers. How Much Credit Card Debt Do You Really Have? How many credit cards have a balance? Make a list of your balances, interest rates, and lenders.
2. Review your options
There are different options for consolidating credit cards, but the two most popular options are:
Open a balance transfer card
A balance transfer card allows borrowers to transfer their balances to a new credit card, typically with a 0% interest rate during an introductory period. If you are able to pay off your debt during the promotional period at a 0% interest rate, you have the potential to save a lot of money on interest.
It is important to note that many balance transfer cards have a balance transfer fee of between 3% and 5%. Before you transfer a balance, figure out how much you’ll be spending on fees and make sure it’s worth it. You’ll also want to read the fine print to find out exactly how long the promotional period is and have a strategy for paying off all or most of your debt during that period.
Take out a personal loan
Another option for consolidating credit cards is to take out a personal loan. You can get a personal loan from a local credit union or financial institution as well as online. Personal loans can be a good credit card consolidation solution because they can offer a lower interest rate than your credit cards.
The caveat here is that you have to have good credit to get a better rate. Read the terms and conditions and understand what fees may be involved when taking out a personal loan.
Look at the APR, repayment term, monthly payment, promotional period, and terms and conditions. Looking at them side by side can help you decide which option is right for you.
3. Make a credit card consolidation request
Once you’ve chosen a credit card consolidation option, it’s time to apply. If you opt for the balance transfer card, apply directly to the credit card company. You will need to provide your personal information and information about the credit cards you are consolidating. Take note of the promotional period and the new APR once the promotional rate has ended.
If you go for the personal loan, research lenders in your community and online through a loan comparison site like Credible. Make sure that you can get enough loan approval to cover your debt and that you get a lower interest rate. You will need to provide your personal information as well as your financial information.
For both credit card bundling options, your credit will kick in and determine your approval as well as your interest rate. You want to make sure that consolidating credit cards can save you money and make payments more manageable.
4. Address the root cause of your debt
When you’re in debt and dealing with various loans, it’s overwhelming. Consolidating credit cards may seem like a great solution to your problem. While credit card consolidation can help you streamline your payments and potentially save you money on interest, if you’re not careful it can lead to increased debt.
The point is, you are taking out another credit card or loan. If you don’t have a strategy for paying it off, you’ll just end up in more debt. The best strategy for paying off your loans is up to you, but some people have struggled to generate more money to pay off their debts, made a point of paying more than the minimum on their monthly payments, used websites and free apps to track their progress and instituted debt avalanche or debt snowball strategies.
5. Pay off the new loan
When all of your loans are paid off, it’s time to pay off the new loan. You will want to make payments on your current loans until the balance transfer is complete or until the personal loan pays off all of your current debts.
Then it’s time to conquer your credit card or personal loan balance. Make payments every month and, if possible, pay more than the minimum. If you have a balance transfer card, know the promotional period and work to pay off your balance before the period ends.