Getting a loan to pay off worrisome credit card debt can be a good way to go. While this financial strategy essentially bundles your credit card balances into one monthly payment, its viability hinges on whether you can get a lower interest rate than you’re currently paying on your credit cards.
This can lower interest costs, provide you with more manageable payments, or slash the payoff period. It’s important to understand the most effective way to consolidate debt hinges on your debt load, credit score, and other factors, so here are the best credit card debt consolidation loan options.
Balance transfer. This option shifts your obligations to a card that charges no interest for an introductory period — usually 12 months or more. The rub is that your credit score must be good or excellent (at least 690 on the FICO scale) to snag most of these cards.
Look for a card that doesn’t charge an annual fee, although some issuers do have one-time fees of 3% to 5% of the total transferred. Before going with a card, determine whether the interest you’ll save will offset the cost of the fee in the long run.
You also want to clear that debt balance before the 0% promotional period ends since any remaining balance would be subject to an increased interest rate and, in some cases, the entire transferred balance going back to when you accepted the transfer.
Credit card consolidation loan. Your debt can be consolidated via a personal loan from a bank, credit union, or online lender. Researching credit card debt consolidation at www.bills.com, you’ll find the key is to get a loan that offers you a lower interest rate than what you’re paying aggregately on current debt.
In general, credit unions are structured more priority to members so that you may have a better shot at a loan at one of these institutions. Large banks typically have tougher eligibility requirements, but you should try there to have a relationship with one. Most online lenders allow you to pre-qualify, which doesn’t ding your credit but does give you an idea of what you likely will qualify for.
Home equity loan or line of credit. If you own your home, you can likely use a home equity loan or line of credit to erase your credit card debts. A loan would come with a fixed interest rate, while a line of credit has a variable rate.
Because your house is collateral, you’ll probably get a lower APR than what you’re offered on a personal loan or transfer card. It’s important to note you can lose your crib if you default on those payments, though. Be certain you can handle the monthly note before signing up.
401(k) loan. If your job offers a retirement account such as a 401(k) plan, you really should not touch it unless you’ve ruled out other kinds of loans.
Now, with that said, one good thing about dipping into your account is that the loan won’t appear on your credit report so that it wouldn’t affect your score. If you can’t pay it off, though, you’ll be hit with a big penalty in addition to taxes on the unpaid balance.
Debt management plan. This tactic allows you to roll multiple debts into a single monthly payment at a lower interest rate. If it’s difficult for you to pay off your credit card debt, but you aren’t eligible for other options due to a low credit score, this strategy may work best for you.
A key benefit is that debt management doesn’t affect your credit score. You can create a debt management plan yourself or go through a credit counseling agency. With the latter, the agency will help you put together a plan to repay your debt and negotiate a payment plan with your credit card issuers.
Now you have the 411 on the best credit card debt consolidation loan options. Take the info and determine which strategy is best for your situation. The time to retake control of your finances is now.