Methods to Reduce Credit Card Debt

Consolidating debt on credit cards can aid in reducing or simplifying your monthly payments to credit cards that can allow you to save money every month. 

There are many options for consolidating credit cards debt. Choosing the most beneficial one will depend on how much you’d like to repay and what your financial situation is, and how good your credit score is.

Consolidating debt on credit cards is the process of combining multiple debts on your credit cards into one monthly payment, which is typically an interest rate lower than the interest you are currently paying.

However, consolidating debt requires time, and many strategies need an application procedure to determine if you’re approved first. This usually will result in an inquiry into your credit that could decrease your credit scores by a few points.

To help you determine whether credit card consolidation is the right choice for your needs, below are a few ways to think about it.

Partner with a Credit Counseling Company

Credit counseling firms can assess your entire financial picture and assist you in developing a strategy to address your financial problems. They offer advice on budgeting, credit as well as money management as well as debt control.

If you’re working with a credit consultant, It is crucial to investigate the company before getting started. Contact the office of your state attorney general and the consumer protection agency to make sure it’s legitimate.

Pros: A credit counseling agency could collaborate with your creditors to establish a debt management program on your behalf.

This will require you to make one monthly installment to the counseling agency every month. The credit counseling organization uses the money you deposit for the payment of your debtors. Credit counselors can also assist your creditors in bargain lower interest rates or waiving specific fees.

Cons: Certain credit counselors might charge fees for sure of their services. In addition, you might have to sign a contract not to seek new credit or make use of existing credit when you are enrolled in a debt management program.

Get a Personal Loan

A personal loan is utilized to consolidate debt, and the money from a debt consolidation loan could use to pay down the balances on your credit cards. Instead of making multiple credit card installments each month, You make one payment to the personal loan.

Pros: If you’re a creditworthy person with good credit, you might be eligible for a lower cost of personal loans than rates that your credit card issuers are charging. 

Personal loans have flexible repayment terms, which means you can choose the best for your budget. Some lenders also pay directly to your creditor, meaning you’re not in a rush to use loan money for another purpose. 

Many lenders also offer the possibility of prequalification, which means you have the option of shopping around to find out what options you have without impacting your credit score.

Cons: You have to meet the lender‘s eligibility criteria to be eligible for a personal loan. Suppose you’ve experienced financial hardship before now.

In that case, you might not qualify for a loan or may be able to be eligible for an interest rate equivalent to the rate you currently pay on your credit card. 

Additionally, some lending institutions charge an origination charge, which can increase by hundreds of dollars the amount of your loan that could drain your loan funds before you receive them.

Utilize an Account to Transfer Balances

A balance transfer allows you to transfer the balance from one credit card account onto an alternative card. Credit cards that allow balance transfers typically provide an initial APR of 0% for balances you transfer within a specific period.

Pros: When you settle the balances that you transfer before the expiration of the introductory period, you could save yourself the expense of interest on the balance you transfer.

Cons: The promotion time is time-bound. If you don’t repay the amount transferred (in complete and on time) before the end of the intro period, the remaining balance will be charged additional interest at your card’s average rate.

Furthermore, certain cards also charge the balance transfer fee, which can add to the amount you’ll have to repay. Additionally, your transfer amount and any prices you pay must not be more than the credit limit you have, which might not be enough to allow you to repay all your credit card debt.

Remember that you might not be able to transfer your balance between credit cards issued by the same bank. If you decide to opt for the transfer of balances, it is essential to make timely payments because late payments can end the promotional APR deal.

Contact a Friend or Family Member for Assistance

Based on the amount you owe and how your financial picture overall appears to be, it might be beneficial to ask a friend or family member to loan you cash.

However, if you decide to go with this option, you need to make sure that the terms and repayment plan are well-defined in the same way as when you take out the loan from a bank.

Pros: If you get a loan from someone you know, you won’t need to meet the minimum criteria to qualify for the loan. In addition, you might receive a lower rate of interest than you would get with a bank or credit union.

Cons: Borrowing money from someone you’re familiar with isn’t easy because it could cause stress to your relationship. In addition, if you cannot pay back the loan in time, you could put their finances at risk.

Make Sure You Are Aware of the Following Options

There are other options for consolidating readily available credit cards. However, we wouldn’t recommend them as they’re riskier than the alternatives we’ve mentioned above.

Cash-out Auto Refinance

Specific lenders offer cash-out refinance loans for autos that allow you to utilize the equity in your vehicle to provide you with an additional loan to cover other expenses, such as taking on your credit card debt. However, if you’re unable to pay your bills, then you’ll risk losing the car.

Home Equity Loan

Home equity loans allow you to take advantage of the equity in your home and use the money to pay for nearly everything. 

It could be an ideal option since they typically come with a lower rate than credit cards or personal loans. However, if you are in default with repayments, the lender generally can initiate foreclosure proceedings, and you may lose your home.

Retirement Account Loan

If you’re a participant in an employer-sponsored retirement plan, like a 401(k) or 403(b), it could be tempting to utilize the money to settle obligations. 

These loans aren’t subject to using a credit card, provided that the plan you choose to join offers the option of a loan. Some contend they typically have lower interest rates than those you’d pay at a bank or another lender. 

If you’re unable to pay your bills, the money you withdraw may be taxed, and you could be required to pay an additional penalty in addition to the tax. Because the money you take out will not earn interest, and you’re not getting the chance to increase your retirement earnings.

Navigating Credit Card Debt during COVID-19

If the financial burden of the coronavirus epidemic has you searching for ways to reduce all of your debts from credit cards, don’t be all alone. Many people have more obligations than ever before or face problems with debt they’ve never met before.

If this describes your scenario, there are multiple options.

We’ve put together a list of resources to help you discover relief measures that have been announced by the credit card issuers, the government, and many more. 

If you can take advantage of these measures to ease your burden, they could help reduce some of the financial obligations by making your debt manageable. Read our overviews of the sources below.

What’s coming up?

Making your debt from credit cards into one payment could be the answer to your financial problems, mainly when you can get lower rates.

Before you consolidate your credit cards, however, you must come up with an appropriate budget to allow you to cut back on your spending as you pay down your debt. 

When you’ve formulated a strategy, you can select the credit card consolidation strategy that is best for you. Try to stay clear of the debt consolidation method that could put your home, car, or retirement savings in danger.

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