7 Methods to Reconsolidate Credit Card Debt

Credit cards can be a useful option to earn a range of rewards for credit cards, including miles or cashback travel. They can be used as a “rainy day” money source and aid in laying the foundation for credit card building, which will allow for future purchases like cars or homes. Sometimes life comes up, and you’re in the middle of several credit cards that have different amounts. Making and executing a plan to settle the debts you owe can be a challenge; however, it’s doable.

Credit consolidating debt is a technique where the balances of multiple credit cards are combined into one. This makes it simpler to monitor since there’s only one monthly installment and due date worry with. The consolidation strategies typically come with lower interest rates, reducing the amount of interest you pay and permitting you to make the payment faster.

With various ways to consolidate and settle debts, the most effective strategy may differ for each person. In this article, we look at typical and unusual ways you can go about consolidating your debts.

Personal Lending

A well-known method to consolidate your credit card debt is to call your local credit union or bank and ask for an installment loan for debt consolidation. The application procedure can typically be made via phone or online. What’s terrific regarding these loan options is that they usually provide flexible time frames (typically between 12 and 60 years) and offer a regular monthly payment that aids in planning your budget. In addition, certain financial institutions can direct payment to the creditor, making it easier for you to pay them.

Be aware that the interest rate is most likely to be dependent on the length of the loan and the credit rating of your score. Also, loans may have origination costs that increase the overall price of the loan.

Commonly, the four primary measures used for lending are credit score, income, and total assets and debts. Certain underwriters, such as the online lender Upstart, have added non-traditional metrics into their approval of loans. Specific metrics like educational level, length of stay at current residence, and even employment experience can result in permission that a bank might not have in the underwriting process. This is particularly useful for those new to the market who do not have a strong credit profile.

There are a few disadvantages like the possibility of origination costs and less loans with terms that you can choose from. Rates are comparable to people with a high credit score. However, they can be significantly higher if you’re credit score is not favorable.

Debt Consolidation Programs

Debt consolidation programs are generally an option wherein the credit card accounts of your merged into one payment. In the end, you’ll typically make a single payment to the company who will then forward the payments to creditors. Don’t confound this with the debt consolidation loan in which a loan is given to pay off your debts. The debts you have are present, but they are less burdensome.

The ideal program’s monthly payments are lower each month than if you make all your payments at once. This means that more of your payment will go towards the reduction of your debts. The debt consolidation programs work with your creditors to reduce the rate of interest on debts and eliminate various charges like late fees, but there is no guarantee. Specific debt consolidation programs could also require closing any or all the credit cards you’re consolidating; therefore, make sure you check for this option to maintain your cards.

The National Foundation for Credit Counseling is an excellent option, to begin with as a non-profit option. However, there are other options to consider. Be aware that while the programs’ primary aim is to develop an effective payment plan with you, some have different setup and monthly costs. It is essential to consider this when making the decision on which one to select.

Low APR Credit Card Offers Credit Cards

Some credit cards provide an initial offer of zero APR on balance transfers of 1% for a certain amount of time following the opening of the account. However, they may still be subject to fees for balance transfers (typically 3 to five percent of the balance is consolidated); however, they usually provide no-cost introductory periods of 12 and 18 months so that you do avoid the risk of getting any further interest.

Its Citi Diamond Preferred Card, for instance, is an excellent alternative for those who are considering this option. It has a reasonable zero-introductory APR up to 18 months when you purchase beginning from the day of account opening. It also offers zero intros APR for the first 18 months on balance transfers that are eligible starting from the initial transfer date. After that, the variable rate will range from 13.74 percent or 23.74 percent, dependent upon your creditworthiness. The charge for balance transfers of $5 or 3% of each transfer’s value is the more remarkable. The drawbacks are that it is capped at the limit of credit set by Citi and being restricted to 18 months before the interest begins accruing. 

A Second Mortgage, or HELOC

If your house has appreciated with time, or the balance has been paid off in a reasonable amount, then making use of your home is an effective way in which you can consolidate debt. A second mortgage or the home equity line of credit (HELOC) effectively uses the home you own as collateral to pay off loans.

Because there is an underlying source of capital for such loans, their interest rate will often be lower than you’d receive with personal loans, making your monthly payments less and giving you the chance to pay off the balance more quickly. There may be additional mortgage-related charges. In this case, making a direct inquiry at your lending institution is essential.

Get a 401(k) loan

We do not typically recommend borrowing money from retirement savings unless it is in the driest period circumstances. In general, you should avoid the 401(k) loan should not be your first choice in debt consolidation, but it can provide a few advantages.

The option of borrowing against the employers’ 401(k) can be a method to get a lower interest cost than a private loan, and in general, this approach could improve your overall credit score. The loan you take out from your personal 401(k) isn’t subject to an assessment of credit, which means it shouldn’t negatively impact your score on credit. Additionally, the debts that you pay off through the loan will increase your credit score.

Be aware that leveraging the funds in your 401(k) reduces your retirement account, and substantial fees could be imposed when you cannot repay the loan. The repayment time could also be extended if you happen to be laid off or lose your job.

Peer-to-Peer Lending

Peer-to-peer lending is another method to obtain money to consolidate loans. Peerform is a marketplace lending platform, connects the people seeking loans with those who want to invest. The goal is to create a “win-win” scenario. The borrowing process is designed to consolidate debt into one easy monthly payment, and an investor is looking for a steady and lucrative return on their investment.

Equity in Vehicles Owned by Owners

If you own a vehicle that’s been paid off or has a lower value than the amount it’s worth, this might be an excellent option to explore. A loan by using your car as collateral will permit you to obtain the money to pay off the other creditors. In this scenario, you can get an auto loan rate that is generally lower than a personal loan.

The drawback here is the loan not being capped at that of a car. Additionally, when taking out an auto loan, most lenders require auto insurance coverage for the vehicle, which may raise the monthly costs if you are carrying PLPD. This is an excellent opportunity for you to use an asset to receive a lower rate on loans.

Bottom Line

Credit cards and their reward programs are great to earn and save for your next trip or simply adding a few dollars to your pockets. But, getting over your head with the debt of credit cards can become extremely exhausting and can negate the miles, points, and cashback you earn on these. You are looking for ways to get rid of the debt fast and within your budget that could help you attain financial freedom and help you back to effectively using your credit period.