5 Ways to Consolidate Credit Card Debt – NerdWallet

Credit batting order debt consolidation is a strategy that takes multiple credit card balances and combines them into one monthly payment. Consolidating your debt is ideal if the modern debt has a lower annual share rate than your citation cards. This can reduce interest costs, make your payments more accomplishable or shorten the bribe period. The best way to consolidate will depend on how much debt you have, your credit score and early factors.

here are the five most effective ways to pay off credit card debt :

  1. refinance with a balance transfer credit calling card .
  2. consolidate with a personal loan .
  3. Tap home equity .
  4. Consider 401 ( k ) savings .
  5. Start a debt management plan .

1. Balance transfer card

Pros :

  • 0 % introductory APR period .

Cons :

  • Requires effective to excellent credit to qualify .
  • normally carries a balance wheel remove fee .
  • Higher APR kicks in after the basic period .

besides called citation card refinance, this option transfers credit card debt to a proportion transfer accredit card that charges no concern for a promotional period, frequently 12 to 18 months. You ’ ll need good to excellent credit ( 690 or higher on the FICO scale ) to qualify for most poise transfer cards. A good poise transplant card will not charge an annual tip, but many issuers charge a erstwhile symmetry transfer tip of 3 % to 5 % of the total transferred. Before you choose a batting order, calculate whether the interest you save over time will wipe out the cost of the tip. Aim to pay your balance down completely before the 0 % intro APR period is over. Any remaining balance after that time will have a even accredit batting order interest rate.

2. Credit card consolidation loan

Pros :

  • Fixed interest rate means your monthly payment won ’ thyroxine change .
  • low APRs for good to excellent credit .
  • calculate payment to creditors offered by some lenders .

Cons :

  • Hard to get a low rate with bad credit rating .
  • Some loans carry an initiation tip .
  • accredit unions require membership to apply .

You can use an unguaranteed personal lend from a credit union, deposit or on-line lender to consolidate credit card or other types of debt. Ideally, the loanword will give you a lower APR on your debt. credit unions are nonprofit organization lenders that may offer their members more compromising loan terms and lower rates than on-line lenders, particularly for borrowers with clean or bad citation ( 689 or lower on the FICO scale ). The maximal APR charged at union credit unions is 18 %. Bank loans provide competitive APRs for good-credit borrowers, and benefits for existing bank customers may include larger loan amounts and rate discounts. Most on-line lenders let you pre-qualify for a accredit card consolidation lend without affecting your credit score, though this feature of speech is less common among banks and recognition unions. Pre-qualifying gives you a preview of the rate, loanword measure and term you may get once you formally apply.

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search for lenders that offer special features for debt consolidation. Some lenders, like Payoff, specify in consolidating credit batting order debt. Others, like Discover, will send loanword funds directly to your creditors, simplifying the summons. not certain if a personal loanword is the right choice ? Use our debt consolidation calculator to enter all of your debts in one place, see distinctive rates from lenders and calculate savings.

3. Home equity loan or line of credit

Pros :

  • Lower interest rates than personal loans .
  • May not require beneficial credit to qualify .
  • long refund time period keeps payments lower .

Cons :

If you ’ re a homeowner, you may be able to take out a loan or line of credit on the equity in your home and use it to pay off your citation cards or other debts. A home fairness loanword is a lump-sum loan with a fixed concern rate, while a argumentation of citation works like a credit calling card with a variable sake rate. A HELOC frequently requires interest-only payments during the draw period, which is normally the first 10 years. That means you ’ ll need to pay more than the minimal requital due to reduce the principal and make a indent in your overall debt during that prison term. Since the loans are secured by your house, you ’ re likely to get a lower pace than what you would find on a personal loanword or remainder transfer credit card. however, you can besides lose your home if you don ’ t keep up with payments.

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4. 401(k) loan

Pros :

  • Lower matter to rates than unguaranteed loans .
  • No impingement on your credit sexual conquest .

Cons :

  • It can reduce your retirement fund .
  • Heavy penalty and fees if you ca n’t repay .
  • If you lose or leave your job, you may have to promptly pay back your loanword .

If you have an employer-sponsored retirement explanation like a 401 ( k ) plan, it ’ s not advisable to take a loanword from it, since this can significantly impact your retirement. Consider it only after you ’ ve ruled out balance wheel transfer cards and other types of loans. One benefit is this lend won ’ metric ton show up on your credit composition, so there ’ s no affect to your seduce. But the drawbacks are significant : If you can ’ deoxythymidine monophosphate requite, you ’ ll owe a brawny penalty plus taxes on the unpaid balance wheel, and you may be left struggling with more debt. As well, 401 ( kelvin ) loans typically are due in five years, unless you lose your job or leave office ; then they ’ re due on tax day of the adjacent year.

5. Debt management plan

Pros :

  • Fixed monthly payments .
  • May cut your interest rate by half .
  • Does n’t hurt your credit mark .

Cons :

  • Startup fees and monthly fees are common .
  • It may take three to five years to repay your debt .

Debt management plans roll several debts into one monthly payment at a shrink interest rate. It works best for those who are struggling to pay off credit calling card debt but don ’ triiodothyronine qualify for other options because of a low credit score. Unlike some credit menu consolidation options, debt management plans don ’ t affect your credit score. If your debt is more than 40 % of your income and can ’ thyroxine be repaid within five years, then bankruptcy may be a better choice. You can find a debt management plan through a nonprofit credit rating rede agency.

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frequently asked questions What is debt consolidation ? Debt consolidation rolls multiple debts, like high-interest recognition cards or loans, into a single requital . Should I consolidate debt ? Debt consolidation might be a dear theme for you if you can get a lower concern rate than what you ’ re presently paying across your debts. This would reduce interest costs, lower your monthly payment or help you pay off debt fast . How will consolidating debt affect my credit ? Your credit score may temporarily dip when a lender or circuit board issuer does a hard credit inquiry. But if you pay on fourth dimension and stay out of debt in the future, the overall effect could be positive. What is debt consolidation ? Debt consolidation rolls multiple debts, like high-interest credit rating cards or loans, into a single requital. Should I consolidate debt ? Debt consolidation might be a beneficial estimate for you if you can get a lower interest rate than what you ’ re presently paying across your debts. This would reduce interest costs, lower your monthly requital or help you pay off debt faster.

How will consolidating debt affect my credit ? Your accredit grade may temporarily dip when a lender or card issuer does a hard credit inquiry. But if you pay on clock and stay out of debt in the future, the overall impression could be positive .

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