When you’re facing a stack of credit card bills every month and you can’t seem to make a dent in the outstanding balances, you’re likely to experience a degree of frustration, anxiety, and maybe even panic. However, there are a number of ways to rectify the situation, one of which the least costly of which is credit card debt consolidation.
However, while this strategy does have the potential to be effective, you must be careful to deploy it properly. Otherwise, it can exacerbate your problem, rather than solve it. It’s useful to consider why you should consolidate credit card debt to help you in that endeavor.
What Exactly is Credit Card Debt Consolidation?
Explained in the simplest terms possible, consolidation is one of a number of different processes by which you roll all of your outstanding credit card balances into a single financial instrument or program to make paying them off easier to do.
The most frequently employed approaches to this are credit card balance transfers, personal loans, home equity instruments, and debt management programs. While each strategy has its pros and cons, the one thing they all have in common is their potential for efficacy under the right circumstances.
Zero-interest balance transfer cards can be amazing tools for eliminating nagging credit card debt. Yes, you will encounter a balance transfer fee and you have to be careful to avoid triggering the considerably higher interest rates these cards can carry. However, if you transfer an amount you’re capable of paying off before the zero-interest grace period expires (usually between 12 and 21 months) you’ll pay off your debt with no additional interest payments.
This can net considerable savings, depending upon the amount of debt you have and your ability to pay it off while the zero percent interest period is still in effect.
Personal loans can also combine those individual monthly payments into a single one each month. This will shorten that stack of credit card bills significantly — if not eliminate it entirely.
Moreover, that single payment can usually be made at a lower interest rate and for a shorter period of time than it would take to pay off each account individually.
Pay careful attention to the terms of the loans, the interest rates, and the associated fees when you’re shopping for one of these though. You have to make sure you’ll derive enough of an advantage from going this route.
Home equity instruments, such as cash-out refinancing and home equity lines of credit can be easier to get than personal loans — if you own property within which you have equity. Even better, you’ll realize the same benefits you’ll get with a personal loan.
However, you’ll also put your home at risk. You could lose your home should unforeseen circumstances inhibit your ability to make the payments as agreed. This is why most financial experts advise against trading unsecured credit card debt for a secured home equity loan.
Debt management as a form of credit card debt consolidation offers the prospect for the least savings of all of the methods covered here. However, it’s also the safest one. Using a firm like Bills.com credit card debt consolidation advice, you’ll work with a credit counselor who will negotiate fee waivers and interest rate reductions with your creditors. You’ll then make a single payment each month to the debt manager, who will in turn pay your creditors on your behalf.
Whichever method you choose, there are some caveats of which you need to be aware. First of all, you’ll need a strong credit score to make any of the first three strategies work in your favor. Further, a lot of people get into worse trouble after doing a consolidation because they either keep spending or didn’t make sure they could afford the monthly payment.
When all is said and done though, the strongest argument for why you should consolidate credit card debt is that it can be an effective means of paying it off, if you’re certain you can follow through.