Having credit card debt can feel like the weight of the world is on your shoulders. But it doesn’t have to! While debt feels overwhelming, there are a few methods you can try to help consolidate it.
What does it mean to consolidate debt?
Consolidating debt is the process of combining multiple credit card balances into one monthly payment. Ideally, this payment will have a lower interest rate than what you’re currently paying. This is a lengthy process, and sometimes an application process is required to see whether you’re approved to do so.
What methods can I try for consolidating debt?
Apply for a personal loan.
By receiving funds from a debt-consolidation loan, you can pay off your credit card balances in one payment instead of making multiple credit card payments every month. This is a solid option if you have good credit, because you might qualify for a lower interest rate than the one your credit card issuer is charging. The payment terms are also a bit more flexible. The downside of a personal loan is that some lenders might charge you an origination fee, which could procure some added costs to the loan.
Use a balance transfer.
A balance transfer allows you to take balances from one or more credit cards and transfer them onto a new card. The good thing about this method is that you can avoid paying interest charges on the transferred balance as long as you pay off the balances before the intro period is over. The downside of a balance transfer is that that intro period is pretty short. And if you don’t pay off the transfer amount before that intro period ends, you’ll accrue interest.
Seek help from a credit counseling organization.
While you can seek help from family members or friends, we also recommend contacting a credit counseling organization. They can give you a synopsis of your financial situation and advise you on how to work with what you have. If you’re going to go this route, make sure you do a lot of research to determine that the organization is reputable. These counselors can work with your creditors to set up a financial plan for you, and help negotiate lower interest rates. However, be aware that the counselor might charge fees for their services, and have specific terms for you to abide by.
Home equity loan.
These loans allow you to borrow money against your home’s equity, and then use that amount to pay off other debt. While this option is appealing due to lower interest rates, you could face foreclosure on your home if payments aren’t being made on time.
Retirement account loan.
If you’re participating in an employer 401(k) program, you do have the option to use funds from that account to pay off debt. This is tempting for some, as they rarely check your credit score and interest rates are low. However if you fail to make a payment, the amount you withdrew is subject to taxing and additional penalties.
Cash out refinance.
This is a riskier method, however you could use your car equity to pay off expenses. But again — if you fail to make payments, you risk losing your car and facing additional fees.
Need help consolidating debt? Ken Venick would love to help! We have over 30 years of experience putting clients on the right path given their financial situation. Visit our FAQ page to learn more, and contact us today!