If you feel like your credit card debt has been sneaking up on you, you aren’t alone. For households that carry credit card debt, the average balance is $15,654. In December 2017, revolving credit that was primarily credit card debt jumped to $1.023 trillion nationally according to the Federal Reserve. This is higher than that just before the housing crisis in 2008 and an all-time high for credit card debt One way to find your way out of your own credit card debt is to take control and learn how to consolidate credit card debt at a lower rate. Its important to understand how credit cards work so you can make an educated decision on how to consolidate credit card debt.
Advantages of Consolidating Credit Card Debt
- Lower interest rate: The main reason most people consolidate their credit card debt is to get a lower interest rate. A lower interest rate can save you thousands of dollars and let you pay off your debt faster.
- Convenience: It’s just a lot easier to pay one loan than several, though this does not compare in importance to getting a lower APR (annual percentage rate).
- Better credit score: A big factor in building your credit score is how much of your available credit you are using. For a good score, you should not use more than 30% of your available credit, but many people max out their credit cards which is hard on their credit scores.
How to Consolidate Your Credit Card Debt
Credit Card Balance Transfer
Sometimes credit card companies offer an extremely low rate, even 0% for an introductory period, to entice you to move your credit card debt over to them. If you are careful and properly use a balance transfer card, you can come out ahead and save significantly. The low or no interest time period varies according to the card. It could be anywhere from six to 21 months. The ideal scenario is where you move your credit card debt from a high-interest card to a (temporarily) no interest card and pay off the debt before the card’s regular APR kicks in.
- Make sure you know the APR of the new card after the introductory period. If it is higher than your current cards, it may not be wise to transfer unless you are positive you can pay off all your debt before the introductory period is over.
- New purchases likely do not qualify for the introductory rate. If your goal is to free yourself of credit card debt, or if the card’s normal APR is high, you won’t want to make purchases with it.
- Many lenders charge a balance transfer fee of about 3%.
If you would like to avoid credit cards all together, you could take out an unsecured personal loan. You will get a better interest rate with good credit, but you can usually look around for the best rate without it impacting your credit score. Personal loans normally have an origination fee of anywhere from 1% to 5%. Though you are unlikely to find a personal loan with a 0% introductory rate, once the normal rate kicks in after the introductory period, it is usually much lower than that of a credit card.
You may want to check first with credit unions for flexible terms and low rates. You could also check with banks and online lenders. Check this calculator and examples of rates and monthly payments from various lenders.
Home Equity Loan or Line of Credit
If you own a home, you can use it as security for a loan to pay off your credit card debt. The upside is that you will get a lower interest rate than if you take out an unsecured loan. You could get a home equity loan, which is a lump sum payment or a line of credit, which is somewhat like making credit card payments but with a variable interest rate. The downside is there is a risk factor in putting your home up as collateral, and it will take longer to pay off your home. If you don’t keep your payments current, it’s possible to lose your house.
You could take out a loan on your 401(K) to pay off your credit cards. The upside is it won’t appear on your credit report, and the interest rate will be lower than that of a personal loan. The downside it that it could affect your retirement. Also, if you can’t repay the loan, there is a significant penalty, and you will also owe taxes on the amount you don’t pay. If you stay with the same job, 401(K) loans are normally due in five years. However, if you leave your job, they are due in 60 days. A 401(K) loan should not be the first option you consider, because of the risk and the potential impact on your retirement.
Non-Profit Consumer Credit Counselor & Debt Management Programs
If you are really struggling to get out of credit card debt, and none of the other options to consolidate your cards seem feasible, non-profit credit counseling organizations offer help. You make one payment to the organization, and they pay each of your creditors. They also might be able to negotiate better terms for you. You may have to pay a small fee to set this up, and some organizations have a requirement that you close your credit cards after you pay them off.
Debt management works by going through an evaluation with your counselor to see how much you would be able to pay back on your loans. The agency then contacts all your lenders and negotiates your debt down as much as possible. You then make one payment to the credit counselor, which is held in escrow, and the counselor then proceeds to pay off each debt as has been negotiated.
If you decide to work with a debt management company, proceed with diligence and research the company prior to signing up with them. While there are many good companies who do great work for their customers, the industry is also crowded with companies who do not. You will generally pay a fee for working with a debt management company, but the savings they should get you should more than offset the cost of their services.
Should You Consolidate Your Credit Card Debt?
You can save money and improve your credit rating by consolidating your credit cards. The danger is that then your cards will have a lot of available credit, and you may be tempted to charge them up again. This would leave you in an even worse situation than if you had not consolidated. Before consolidating your debts, make sure you have a written budget that you actually follow to avoid going into debt even deeper. It’s not enough to learn how to consolidate your credit card debt. You also need to closely examine your spending habits and follow a structured plan to change them.
Compare the Best Student Loan Refinance Rates
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. As certified by your school and less any other financial aid you might receive. Minimum $1,000. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation. This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 5/18/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.