Do you have too much credit card debt? A great way to lessen your burden when it comes to excessive credit card debt is to consolidate it. This is where you create another loan that will pay off your previous debt at a lower interest rate. This should effectively lower your monthly payments. If you maintain the payments you were making before your credit card debt consolidation then you can pay off your debt in less time because you will have more money directed at your principle.
There is good news and bad news when it comes to credit card debt consolidation. The great thing is that your payment should get lower. The bad news is that getting a lower payment doesn’t change the potentially bad habit that got you too far in to debt in the first place. The lesson is that without a solid plan to curb spending you could wind up being in more debt after a consolidation loan because it can feel like you have more money to spend.
How do you go about doing a credit card debt consolidation?
There are 3 major ways to go about a debt consolidation.
1. Home equity or line of credit
Real Estate prices haven’t necessarily boomed back to pre-recession levels. However some folks are in a positive equity position. With interest rates as low as they are it’s a great time to refinance your home and consolidate your credit card debts in to your mortgage. This does 2 things for you. One, your interest rate may go from a high 16 % or higher to a low 3.75%. Two, the amount you are paying on your mortgage interest rate could be tax deductible against your earned income. In order to qualify to refinance or get a line of credit you must have impeccable credit.
2. Zero Percent Credit Card
We are starting to see some 0% introductory rate credit cards being offered again. If you can transfer your balance to another credit card with a 0% interest rate then your minimum payment and anything extra will go directly to the principle balance for a period of time. Most of these introductory offers are for up to 1 year and then default to a much higher percentage rate. Watch out for transfer fees. A lot of the 0% introductory offers have a transfer fee in the 3% range. Typically you will need good credit to qualify for these no interest credit cards.
3. Debt Consolidation
Lastly, you can get a true debt consolidation loan where you get one lender to pay off several other lenders and they hold a single note that you pay off. Instead of making payments to several lenders. You pay one. Make sure that you are actually saving money by consolidating this way. If this is an attraction option for you then your should check with a few of your local banks to see what they may be able to do for you.