Compare Options for Credit Card Debt Consolidation

Table of Contents

  • What is Debt Consolidation?

  • What Happens When You Consolidate?

  • How It Works

  • Types of Debt that Qualify

  • Consolidation and Your Credit

  • Choosing the Best Way to Consolidate

  • Consolidating in 2021

  • What is debt consolidation?

    Debt consolidation merely refers to the summons of combining multiple debts into a single monthly payment. alternatively of making payments to all your creditors individually, you roll all your debts into a individual, simplified repayment plan. At the like time, you besides work to reduce or eliminate the pastime charges applied to your debt. This allows you to get out of debt faster because more of each requital you make goes to eliminating chief .
    There are three basic options that consolidate citation card debt ; you can find more data on each solution farther down this page .

    Solution DIY or Assisted How It Works
    Credit card balance transfer DIY You transfer the balances from your existing high interest rate credit cards to one with 0% APR on transfers.
    Personal debt consolidation loan DIY You take out a loan to pay off all your credit cards, leaving only the loan to repay.
    Debt management program Assisted You set up a debt repayment plan that works for your budget with the help of a certified credit counselor.

    Need aid deciding which debt consolidation option will work for you ? We ’ ve helped over 10 million people find the mighty solution .

    Free Debt Analysis

    What happens when you consolidate?

    Three winder things happen when you consolidate credit rating menu debt :

    1. You get one monthly payment. Instead of juggling multiple bills throughout the month with different due dates, you have just one payment. It’s easier to manage your bill payments and avoid late payments that can lead to extra fees.
    2. You minimize interest. This means that more of each payment you make goes to pay off the debt instead of accrued monthly interest charges.
    3. You can get out of debt faster. Since the interest is minimized, this means you can get out of debt faster even if you’re still making the same payment each month. In fact, you may pay less each month and still get out of debt faster.

    An example of what happens when you consolidate

    For model, let ’ s say you owe $ 10,000 on your credit cards at an median interest rate of 18 % APR. On a criterion minimum payment schedule where you pay 3 % of the balance each calendar month, the starting minimum payment requirement would be $ 300 .
    If you only make minimum payments, it will take 226 payments to pay off the balance in full. That ’ sulfur 18 years and 10 months before you ’ d be debt-free. During that time, you ’ five hundred pay $ 9,597.78 in pastime charges. In early words, you about double the cost with lend interest charges .
    Let’s say you make fixed monthly payments of $300 instead of just paying the minimum. It would hush take 47 payments to pay off the balance— that ’ sulfur 3 years and 11 months. The total interest charges would be much lower, but at 18 % APR you ’ d hush pay $ 3,967.21 in sake charges .
    Now let’s say that you consolidate with a 36-month loan at 10% APR. The debt would be paid murder in 36 payments or precisely three years. The monthly payments would be $ 322.67. The full interest charges would be merely $ 1,616.19 .
    If you got a 48-month loan at 10% APR, the monthly payments would be just $ 253.63 and the full interest charges would hush alone be $ 2,174.04. so, you ’ vitamin d pay off the debt in approximately the lapp sum of meter as fix payments, but with much lower monthly and sum costs .

    How debt consolidation works

    Debt consolidation is more of a process than a single solution. In fact, there are a range of fiscal products that allow you to consolidate debt. These include :

    • Balance transfer credit cards
    • Personal debt consolidation loans
    • Debt management programs
    • Home equity loans
    • Home equity lines of credit (HELOCs)
    • Cash-out mortgage refiancing
    • 401k loans
    • Life insurance policy loans

    Some of these products are better than others. For case, in most cases you want to avoid borrowing against your 401 ( kelvin ) retirement plan or life insurance. Borrowing against your 401 ( k ) can drain income you ’ ll need belated in life sentence and could significantly delay your retirement. Your liveliness insurance policy is there to protect your family in case something happens to you .
    Borrowing against home equity can besides be hazardous for homeowners, as it can increase your risk of foreclosure. It ’ s normally not advisable to borrow against your fairness entirely for the function of paying off credit cards and other unguaranteed debts. You basically convent unguaranteed debt to secured .
    however, if you ’ re thinking about borrowing against your equity for early purposes, such as home renovations, you may consider using some of the funds to consolidate debt. If so, always consult with a HUD-certified housing advocate so you can understand the risks and weigh the benefits .
    But for the aim of this steer, we ’ ll be focusing on the three most popular and unguaranteed ways to consolidate debt—balance transfers, consolidation loans, and debt management programs. here is a detailed explanation of how each of these solutions works :

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    Option 1: Balance transfer

    This is a do-it-yourself option that requires a good to excellent accredit score in order to be successful .

    1. You qualify for a balance transfer credit card based on your credit score.
    2. These cards offer 0% APR on balance transfers for a limited time after you open the account—usually between 12-18 months.
    3. The better your credit, the longer the 0% APR introductory period.
    4. Once the account is open, you transfer your existing balances. You can either call the customer service line to provide account numbers and balances over the phone or you can enter them online.
    5. You usually must pay a balance transfer fee on each balance you move; fees range from $3 to 3% of the balance moved.
    6. With your debt consolidated, you pay it off in the largest chunks possible.
    7. The goal is to eliminate your debt in-full during the interest-free period.

    Learn more about balance transfers »

    Option 2: Personal loan for debt consolidation

    This is another do-it-yourself option for consolidation. You need good to excellent credit in rate to use this solution efficaciously .

    1. You apply for an unsecured personal loan through your preferred lender.
    2. They evaluate your credit to determine eligibility and set your interest rate.
      1. You choose a term that offers monthly payments you can afford
      2. A shorter term means higher monthly payments, but lower total costs
    3. Longer terms mean lower monthly payments, but higher total costs because there are more months to apply interest charges.
    4. Once approved, the money gets disbursed to your creditors to pay off your balances. In some cases, the lender will deposit the money into your bank account, and you use the funds to pay off your balances. In others, the lender may disburse the money directly to your creditors.
    5. This leaves only the loan to repay.

    See if a consolidation loanword is right for you »

    Option 3: Debt management program

    This is a professionally assist way to consolidate debt. It ’ s the only solution that works regardless of your credit score. sol, this is the entirely way to consolidate if you have bad credit .

    1. You request a free debt and budget evaluation from a certified credit counselor.
    2. They evaluate your debt, credit and budget to see which solutions will work in your situation.
    3. If the DIY solutions listed above aren’t feasible, they check to see if you’re eligible for a debt management program.
    4. As long as you have the means to make a reduced monthly credit card payment, you typically qualify.
    5. If you’re eligible, you and the counselor determine a consolidated monthly payment that you can afford.
    6. Then, they call each of your creditors to negotiate. The goals are:
      1. Get your creditors to agree to have their debt included in the program
      2. Work with your creditors to reduce or eliminate interest charges and stop future penalties
    7. Once all your creditors sign off, the program starts.
    8. You make one payment to the credit counseling agency each month, which they distribute amongst your creditors every month.

    Do you need help to consolidate your debt ? »
    This is one example of how a debt management plan helped a node consolidate credit batting order debt effectively :

    Case Study

    Joan
    from
    Henderson, NV

    “ I have to thank Consolidated Credit for the great customer service that I received while going through the process of debt consolidation. I was receiving up to 18 calls per day before I called. I wish that I did this years ago. ”

    Where
    she
    started:
    • Total unsecured debt: $28,014.00
    • Estimated interest charges: $15,544.62
    • Time to payoff: 12 years, 1 month
    • Total monthly payments: $1,121.80
    After DMP enrollment:
    • Average negotiated interest rate: 4.51%
    • Total interest charges: $4,091.41
    • Time to payoff: 4 years, 5 months
    • Total monthly payment: $611.00
    Time Saved

    7 years, 8 months

    Monthly Savings

    $ 510.80

    Interest Saved

    $ 11,453.21

    What types of debt can you consolidate?

    The types of debt that qualify for debt consolidation will depend on what fiscal product you use to consolidate. It may besides depend on the specific credit rating card or loan that you use. For model, some libra transportation credit cards will only allow you to transfer credit card balances, while others may allow you to transfer a wide crop of loans .
    Always check terms carefully before you consolidate so you know which accounts you can include .
    In general, you can consolidate most unguaranteed debt :

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    • General-purpose credit cards
    • Store credit cards
    • Charge cards
    • In-store credit lines
    • Unsecured personal loans
    • Third-party collection accounts
    • Back child support and alimony*
    • IRS and state back taxes*

    * These debts can not be included in a debt management program .
    student loans can be chancy. You can not include student loans in a debt management program. But tied some debt consolidation loans and symmetry transfer cards won ’ t take scholar loans. That ’ randomness because scholar loan debt is singular and is even treated differently during bankruptcy .
    Secured debts broadly can not be consolidated with unguaranteed debt. however, some debt consolidation loans and balance transfers have now started to allow car lend consolidation. Mortgages and mortgage products like home fairness loans and HELOCs can not be consolidated .

    Choosing the best option for debt consolidation

    “ Choosing the properly option to consolidate debt is highly subject on your fiscal situation, ” explains Gary Herman, President of Consolidated Credit. “ What works for a friend, family extremity, or neighbor may not necessarily work in your site. so, you need to evaluate your fiscal situation carefully to choose the solution that fits your needs, credit, and budget. ”
    This chart compares the three debt consolidation solutions outlined above based on four key fiscal factors :

    Recommended debt amount Balance transfer: Up to $5,000
    Debt consolidation loan: $5,000-$25,000
    Debt management program: Any debt amount (no minimum or maximum limit)
    Credit score required to qualify Balance transfer: Good-excellent (760+)
    Debt consolidation loan: Good-excellent (760+)
    Debt management program: None (credit score does not impact eligibility)
    Cost Balance transfer: Up to 3% of each balance transferred
    Debt consolidation loan: Up to 1% of the loan amount (origination fee)
    Debt management program: Monthly fee, averaging $49
    Time to payoff Balance transfer: 12-18 months
    Debt consolidation loan: 24-60 months
    Debt management program: 36-60 months

    The impingement of debt consolidation on your monthly payments depends on your specific position .

    • Balance transfers often involve increased monthly payments because you want to pay off the debt in full before the interest-free period ends.
    • Debt consolidation loan payments may be higher or lower depending on the loan term (length of the loan) that you choose.
      • A longer term will usually result in lower monthly payments but higher total interest charges.
      • A shorter term will increase the monthly payments, but reduce the total cost.
    • Debt management program payments are based on your budget. In many cases the monthly payments are lower.

    Get a free debt and budget evaluation to identify the best debt consolidation option for your needs .

    Start Now

    How does debt consolidation affect your credit?

    When done correctly, debt consolidation broadly has a incontrovertible impression on your credit. No matter which option you use to consolidate, it will not generate any negative notations in your citation report .
    The effect of debt consolidation on your credit score and how it gets reported on your credit rating report varies based on which solution you use .

    How balance transfers affect your credit

    When you transfer your existing balances to a balance transfer credit rating calling card, you will notice the succeed changes in your credit report :

    • The application for the credit card will be noted as a “hard credit inquiry” on your credit report for two years
    • The balances on your existing cards will drop to zero
    • The new credit card account will be reported on your credit report
    • All payments on the consolidated debt will be noted on the new account.

    The shock on your credit rating grudge on your accredit sexual conquest can vary, but it will affect your score in the following ways :

    • The new credit application can decrease your score by a few points initially, but the impact will diminish within six months
    • The new account may also decrease your “credit age” which measures the average length of time you’ve had your accounts open.
    • The new credit limit will decrease your “credit utilization ratio” which measures how much debt you have relative to your total available credit limit. This will be positive for your score.
    • All payments made on time will improve your payment history, which is the biggest factor used to calculate your credit score

    How debt consolidation loans affect your credit

    When you consolidate with a personal loanword, you will notice the pursuit changes in your credit report :

    1. The credit application will be noted as a hard credit inquiry for two years.
    2. The balances on your credit cards will be reduced to zero.
    3. The new loan will show up on your credit report.
    4. All loan payments will be noted in the payment history for that account.
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    here is how a debt consolidation lend may affect your credit grudge :

    • The hard credit inquiry may decrease your score by a few points, but this will diminish over the next six months.
    • The new loan account may decrease your “credit age” which measures the average age of your accounts.
    • Your credit utilization ratio will be decreased significantly. While loans don’t increase your credit limit, your current balances on all the cards you consolidate will drop to zero.
    • Payments made on the loan will improve your payment history.

    How a debt consolidation program affects your credit

    When you consolidate with a debt consolidation ( management ) program, this is what you will see on your credit report :

    1. The program will not generate a hard credit inquiry. While a credit counselor will check your credit before you enroll in a debt management program, this is a “soft credit inquiry.”
    2. The program will not create a new account on your credit, because it is not a loan or credit line.
    3. Your credit card balances will not be immediately paid off.
    4. Instead, all the payments you make on a debt management program will be noted in the payment history of each account you include in the program.
    5. The balances will gradually decrease as you pay them off.

    here is how a debt management program may impact your credit score :

    • The soft credit inquiry will not affect your score at all.
    • The payments you make on time on the program will improve your payment history.
    • Gradually, your credit utilization ratio will decrease as your balances decrease.
    • However, since each credit card gets closed when it’s paid off, this will decrease your total available credit limit, which also impacts your utilization ratio.
    • What’s more, closing accounts will also decrease your credit age, which can also damage your credit.

    The credit rating score affect of a debt consolidation course of study is broadly positive or neutral overall. however, if your credit sexual conquest is extremely high before you enroll, you could see your score decrease .
    If you have a high credit score, you may want to consider do-it-yourself debt consolidation first .
    When it comes to consolidating debt during the economic downturn caused by the pandemic, there ’ randomness effective news and bad news .
    do-it-yourself debt consolidation can be highly beneficial because pastime rates are at historic lows. You can significantly reduce costs and save thousands by consolidating your debt .
    On the other hired hand, lenders and creditors have tightened finance requirements. They want to protect their business against the increase risk of default, so they ’ re only extending credit to people with higher credit scores and lower debt-to-income ratios .
    “ It ’ s a apprehension 22 for many Americans, ” explains Gary Herman, President of Consolidated Credit. “ Debt consolidation would help them pay off their debt, simplify their bill payment calendar, and even reduce their monthly payments to improve their budget. That ’ s all highly beneficial, peculiarly during a receding .
    “ however, ” he continues, “ it ’ s harder to qualify for balance transfer cards and debt consolidation loans. only people with the best credit rating scores and moderate amounts of debt can qualify. What ’ s more, lenders are limiting loan amounts and interest-free periods on libra transfers. thus there ’ south a challenge there angstrom well. ”
    It ’ south significant to note that these changes in the market do no effect eligibility for debt management programs. so, while you may not be able to consolidate on your own if you have a low credit score or besides much debt, there ’ sulfur still an choice that allows you to consolidate .

    Additional Resources to Help You Consolidate Debt Effectively.

    Use our expert debt advice to find the help you need to consolidate credit cards into one easy payment

    How to consolidate debt with bad credit

    Debt consolidation is possible, even with bad citation ! We explain how serve consolidation through a debt management program allows you to consolidate debt efficaciously, careless of your credit score. You can pay back everything you owe and actually build credit at the lapp time !

    Credit card consolidation can turn piles of credit card debt into a single, simplified monthly payment

    10 important warnings about consolidation

    There are some park traps in debt consolidation that exist no count how you consolidate your debt. Learn about these ten common pitfalls and how to avoid them. With the correct cognition, you can consolidate successfully, minimize interest charges and avoid citation damage so you can move forward quickly .
    If you're frustrated that you can't eliminate credit card debt on your own, ask for help

    5 reasons credit consolidation fails

    There are five things that can happen when you ’ ra consolidating debt that can prevent you from being successful. Learn what these factors are and how to take steps to avoid them so you can get citation card consolidation right the first clock and eliminate your debt with ampere little harass as possible .
    talk to a certified credit counselor to decide which debt consolidation option is right for you .

    Free Debt Analysis

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