Credit cards are an effective tool for getting great cash back, welcome bonuses, or miles for travel. Apart from this, they are the most important source for building a strong foundation for credit for future purchases. But credit card debt can be overwhelming for you in cases where the bank charges a high interest rate on multiple cards and it’s difficult for you the bear.
If you are one of those individuals who is stuck with multiple credit cards with varying balances, consider the debt consolidation strategy. However, working on the strategy considering all the factors can be daunting for you. To ease your pain, we have compiled a list of the best ways to consolidate credit card debt. It is important to note here that with various methods to consolidate the debts the best strategy may differ from situation to situation.
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Key Takeaways – Best ways to consolidate credit card debt
The smarter financial moves can ease your burden. So if you are struggling to make monthly payments on various cards, consolidating is the best choice for you. Here are the key benefits of making use of the best ways to consolidate credit card debt.
- Credit card debt consolidation will help you simplify your finances, save a greater chunk of money on interest, and get rid of the debt in a quick and efficient manner
- With multiple credit debt consolidation options, the best ways to consolidate credit card debt include balance transfer cards to personal loans that will get you a lump sum of money with low interest and 0% APR for the introductory period in some cases
- Before choosing the viable option among the best ways to consolidate credit card debt, it is important to carefully evaluate your current financial status, and eligibility for the loans and put a strategic plan in action to prevent future debt from piling up.
What is credit card consolidation?
Credit card consolidation refers to the process of combining multiple credit card balances into a single monthly payment. This process makes it simple and easy for you to keep track of your payments, save money, and even pay off the debt quickly.
The best ways to consolidate credit card debt offer low APR that will save on the greater interest charges and you can pay off debt more quickly. To qualify for the lower interest rate, it is important to have a good credit score so that potential lenders can easily determine your creditworthiness.
Is credit card consolidation the right choice for you?
If you are finding quite tedious to keep a track on lots of card payments every month, then combing multiple debts into one through the process credit consolidation is the viable choice for you. As single payment is easier to track and manage therefore it can help you save money on interest. If you get the new payment on lower interest than even more favorable for you to pay in the long term.
But on the other side, there are some potential risks associated with credit card consolidation. The consolidation in some cases costs you more as the high interest can increase the money you have to return to the bank. In addition, even if using the best ways to consolidate credit card debt, you free room on your current credit cards that may result in freed-up credit, making it difficult to deal with debt.
How does credit consolidation work?
In order to consolidate credit card debt the process it quite simple and straightforward. All you have to do is work with a loan officer, or credit counselor or work on your own to gather all the debits in a single payment. With multiple lender options, you can prequalify for a loan without having an impact on your credit score. If you prequalify then the lender will require you to authenticate all the information you have provided along with the hard credit pull on your credit card.
After the approval of the loan application, it typically takes 5-10 working days to receive your funds. For some lenders, the process can take a little longer to verify all the essential details. And surprisingly some lenders can also directly pay off your credit card companies.
7 Best ways to consolidate credit card debt
So here are the seven most effective ways to pay off your credit card debt that includes the following :
- Refinance with a balance transfer credit card
- Consolidate with personal loans
- Specially designed debt consolidation program
- Second Mortgage or HELOC
- Consider 401(K) Loan
- Peer to peer lending
- Equity in Owned vehicles
Balance transfer credit card
The balance transfer credit card gives you the option to shift your balance from one or more credit card into one account. This one tops the list of best ways to consolidate credit card debt as it charges no interest in the introductory period of 1 12-21 months. All you need to have is a good credit card score of 690 or above for this card.
During the introductory period, you can easily make progress and pay off the debt with no additional interest or charges. If you pay the overall balance in the introductory period, you can avoid a huge sum of money without paying for accruing interest charges. However, any balance that’s remaining will be charged the interest with the bank’s regular APR.
Few of the banks can cancel your introductory financing offer in case you make late payments. So it is advisable to set alarms and reminders to pay your credit card bill on time. In addition, there is a certain credit limit and you cannot exceed that transfer limit. In some cases, it is possible to transfer but additional charges over the limit fees are applicable.
| Pros | Cons |
| Normally have a 0% introductory APR | May have to pay a balance transfer fee |
| Year or more to pay off interest | In some cases, it takes up to 6 weeks to transfer funds |
| Can make use of your credit card to make additional purchases | |
| Many of the balance transfer cards don’t charge an annual fee |
Personal Loans
One of the best ways to consolidate credit card debt is to reach out to the local bank, or credit union and request for a personal loan, ideally the loan will give you a low APR on your debt to save big time. The application process for the loan can be completed via online portals or a phone call. The greatest benefit is its flexible terms and conditions for consistent month-to-month payments that fit well with your budget.
It is important to be aware of the interest rates at the start to avoid inconvenience at the later stages. These loans might be subjected to origination fees that can add up to the overall cost of the loan. These loans are lent to the individuals after checking the four important parameters which include income , assets, credit score, and total debts. As a surplus, some of the financial institutions will let you make payments directly to the creditors to save you from the hassle.
For the ease of loaners, many lenders let you pre-qualify for the credit card consolidation loan without causing an impact on the credit score. Although this feature is less common in banks you get an overall idea about the loan amount and terms and conditions that are applicable to them. It is important to look for lenders that offer extra features for debt consolidation to benefit you in the long run.
| Pros | Cons |
| Fixed interest rates so that monthly payments won’t change | Not easy to get a low rate with bad credit card score |
| Comes with set repayment terms and all the terms and conditions are clear to the user | Comes typically in form of lump sum , so for additional credits you may have to take another loans |
| Direct payment to the creditors by a few lenders | Credit unions require membership |
| Low APRs are offered to all those having excellent credit card score |
Debt consolidation program
The debt consolidation program is a service that is specially designed for borrowers where your credit cards are combined into a single payment. Through this program, you make a single payment to the program that is further forwarded to the creditors. In this way you can streamline the process and remove the hassle by saving your energy and time. Many people confuse this with debt consolidation loans but in this case, the debts are still there but can be managed with ease.
The debt consolidation program works individually with the creditors to ease your burden and can reduce the interest rates on debts and eliminate the late fees if applied in some cases. Some of the programs require the closure of some or all the cards that you are consolidating, so it is important to check the details beforehand. In case you are looking for an organization to help you in this, the National Foundation for Credit Counselling is a credible nonprofit organization that can pull your report and analyze your financial standings in detail.
If your debt is more than 40% of your income and cannot be paid in the timeslot of 5 years, then bankruptcy is the favorable choice. If you are consolidating without taking new loans than credit counseling agencies can help you in debt management plan.
| Pros | Cons |
| Have fewer bills to manage | Have fewer options to trust when it comes to debt consolidation program |
| Can save money while the program talks to creditors to lower the interest rate | There may be additional up-front costs in some cases |
| Can work to reduce all the additional cost that is charged to the loaners |
Second Mortgage or HELOC
If you own a home, you are potentially eligible for home equity line of credit (HELOC) to consolidate your credit card debt. This one is regarded as one of the best ways to consolidate credit card debt for all those who have a fair credit of 580 or above. In this way, you can qualify for a low interest rate as compared to a personal loan.
Taking out the second mortgage or HELOC lets you make use of the home as collateral to pay off the increasing debt. However, in this case, risks are also associated as if you miss a payment there is a higher chance that you can lose your home. Some lenders can also limit how much equity you can borrow. Some of the lenders have a total combined loan-to-value ratio of 80% between the primary mortgage and home equity loan. Furthermore, you may have to face upfront or ongoing costs.
| Pros | Cons |
| Interest rates are comparatively low | Foreclose your home if you are not able to pay the loan |
| Affordable monthly plan with lengthy repayment terms | There may be additional up-front costs in some cases |
| HELOC may charge interest only in the initial period |
401(K) Loan
Fret not, if your credit score is poor and you don’t own a home, we have a way out for you too. With 401 (K) loan you can borrow from the personal retirement account instead of the traditional lender. This is one of the effective and best ways to consolidate credit card debt as the interest you pay goes to your account and there is no additional tax penalty.
This type of loan allows you to borrow an amount of up to $50,000 which is 50% of your total savings within the duration of 12 months. The duration to repay the loan is 5 years, which is enough for the user. The greatest benefit of one of the best ways to consolidate credit card debt is that in case you miss a payment, no additional charges are applicable. As loans are not directly reported to the credit bureaus you won’t have to worry a lot to pay back your finances.
| Pros | Cons |
| Does not require a credit inquiry before getting funds | Potentially reduce your retirement fund |
| Lower interest rates than unsecured loan | Heavy penalty and fees if you don’t pay it in 5-year time slot |
| Overall no impact on the credit score | If you lose your job, you have to quickly repay the loan |
Peer to peer Lending
This one is another of and best ways to consolidate credit card debt as it is highly convenient and faster. There are several marketplaces that act as a lending platform and brings those seeking loans and those who are wiling to invest under one shade. The whole idea is to create a win-win situation for everyone to have easy access in all use cases. Those borrowing to consolidate debts can pay monthly installments and can get rid of debts while on the other hand, investors can seek high returns on investments.
| Pros | Cons |
| Lower interest rates in comparison to financial institutions and banks | Can potentially result in loss for investors |
| Range of loan terms and repayment options | Lack of regulatory oversight |
| Investors would not have the same level of protection as they have with traditional financial institutions |
Equity in Owned Vehicles
Taking loan out using your vehicle collateral is another best way to consolidate credit card debt. Through this, you can gain auto loan with low interest as compared to a personal loan. Although this is an effective approach to pay off debt quickly before accruing interest charges. The downside of this loan is that you could only get the amount equivalent to the car you own. Moreover, when lending auto loans most of the lenders have the condition of auto insurance coverage on the vehicle which could add up to the monthly expenses.
| Pros | Cons |
| Leverage an asset to obtain loan | Putting your car at risk |
| Possibly lower interest rates | Have a specific short time period to pay the loan |
In brief, before selecting the viable option among the best ways to consolidate loans, it is important to evaluate credit card balances, interest rates, and monthly payment amounts as well as how you handle future charges. In addition, controlling your spending once you have consolidated your credit cards is also of pivotal importance and you find yourself in trouble by lashing the balance back up.
Frequently Asked Questions
 What are the key benefits of Credit card consolidation?
 Using the best ways to consolidate credit card debt is one of the comprehensive approach to get the following benefits:
1. Quick and efficient debt repayment
2. Comparatively low interest rates
3. Fixed repayment schedule
4. Single manageable payment for simplified finances
 How does debt consolidation affect your credit?
 Debut consolidation has a positive impact on the credit card score when considered in long term. Initially, when the lender or card issuer does a detailed inquiry your credit card score may temporarily dip and later raise the credit score when you pay off the debt .
What is the most effective strategy among the best ways to consolidate credit card debt?
 Among all the options for the best ways to consolidate credit card debt, the balance transfer option is the most suitable one. In this way, many of the individuals who are not eligible for personal and 401 loans can pay off their debts.  For balance transfer credit card, you need to have a good credit score to become eligible for this.
