Credit cards help customers to gain cash back, store credits, credit points, etc. Each credit card’s credit limit, user charge, etc., varies depending on the service provider. Adding points to credit cards through each purchase is a great way to purchase merchandise later using the credit points.
Without a proper strategy to pay off the pending balance on multiple credit cards, it could often become a debt. Debts affect credit points and cause flaws in the customer’s credit history. The section below explores some of the best credit card debt consolidation methods that help avoid any future complications.
Credit Card Consolidation: An Overview
Credit card consolidation is a popular method that helps manage debts on multiple credit cards at once. This concept combines the debts on various credit cards and enables a single monthly payment to clear it off monthly.
Credit card consolidation eliminates the difficulty of keeping track of multiple credit cards. Instead, the user must manage a single payment for all the cards. There are different methods to employ credit card consolidation.
All the credit card consolidation methods have a low APR or Annual Percentage Rate that enables the cardholders to pay minimum amounts and helps quickly repay debts. Consolidated credit card debt will have a single due date too.
Credit Card Consolidation Loans
Consolidation loan for credit cards is a common concept in the banking industry. Credit card holders with multiple debts can avail of a loan to pay off the entire debt. This loan taken to pay off the credit card debt is called a credit card consolidation loan.
Such loans enable cardholders to manage multiple debts into one, which is much easier to keep track of.
Credit Card Consolidation Process
The credit card consolidation process is simple and involves only a few steps. The cardholder can avail of the service of a credit counselor, a loan officer, etc., to take care of the consolidation process.
An expert could help the cardholder choose the proper consolidation process, as many are in place. Some of the popular credit card consolidation strategies are as follows.
*Taking personal loans
*Credit card consolidation companies
*Availing of the existing APR offers
*Using a mortgage
*Using a vehicle as collateral
The section below discusses in detail each of the credit card consolidation strategies, their effectiveness, pros, cons, and scope. This enables the customers to make an educated decision in choosing the right credit card consolidation method.
1. Taking Personal Loans
The most common consolidation strategy is taking personal loans to manage credit card debts. As the name suggests, cardholders must contact any banking institution or credit union and obtain a personal loan.
The positives of taking a personal loan are:
*The application process can be quickly completed online or offline
*Repayment duration is flexible (usually between twelve to sixty months)
*An effective monthly repayment plan can be set in place
The interest rates of a personal loan vary depending on the amount taken and the cardholder’s credit score. Generally, the criteria for deciding whether a cardholder is eligible for a personal loan are as follows:
*Total debts existing
Persons with impressive credit scores and no debts are highly likely to get approved for a personal loan. Any fault in the personal loan repayment could cause the loss of credit points.
Some of the drawbacks of availing a personal loan are:
*Cardholders may have to pay an origination fee for the loan
*Many banks offer minimal personal loans, so the choice is quite limited
*Cardholders with a low credit score must pay high-interest rates.
2. Credit Card Consolidation Companies
Credit card consolidation companies or agencies are extremely helpful in managing the credit card consolidation process. They conduct various debt consolidation programs with varying terms and conditions. The cardholders can choose the best suitable program for them.
These companies or agencies consolidate the cardholder’s debt into a single source. The cardholder has to pay the agencies, and the agencies will properly pay off the creditors without any fault. Some of the notable features of these programs are:
*Interest rates might go low for credit card consolidation agencies
*As these agencies ensure no halt in the repayment, the cardholder will not have to pay any late fee
*Agencies review the cardholder’s credit score constantly and make the necessary actions to improve the score
Some of the issues of this strategy are:
*Some programs may close the concerned credit cards during the consolidation. So, people who wantto keep their credit cards may have to choose the program wisely.
*Monthly fees or setup fees exist
3. Availing of the Existing APR Offers
Several credit cards provide a complimentary offer of 0% APR for a prescribed time. They help avoid additional fees during the consolidation process, provided that it takes place within the mentioned period.
The offer usually extends between twelve to eighteen months
A small balance transfer fee may have to be paid by the cardholder
Persons with excellent credit scores and credit histories would be able to avail of 0% APR credit cards
The very few downsides to this method are:
*A credit limit exists
*Applicable only during the mentioned period
4. Using a Mortgage
Another common strategy is using a home or other property as a mortgage to repay credit card debts. Using a home as collateral could significantly reduce the interest rates compared to a personal loan.
The lower interest rate in this method enables the cardholder to pay off the credit card balance much more quickly. There are only several downsides to this method. They are:
*Can cause mortgage-related additional expenses
*It may have several tax implications
5. Peer-to-peer Lending
Peer-to-peer lending is another safe way to gather funds to consolidate credit card debts. There are various peer platforms online that contain people who are interested in investing. The investor would get a steady return on investment for the funds they provide.
Using a vehicle as collateral or availing funds from the retirement savings like the 401(K) loan are the other effective methods in credit card consolidation. Both these options provide low-interest rates, making the balance repayment easier.