Credit card consolidation refers to combining multiple credit balances into a single monthly installment. The loan you take on in credit card consolidation should ideally have a lower APR than the rates on your credit card.
Despite sounding daunting, credit card consolidation is not the end of the world at all. In many cases, it helps make it faster and easier for you to pay off credit card debt as the main goal of credit card consolidation is to eliminate or reduce the interest rate applied to the balance.
When credit card payments are put off for a prolonged period, not only can they become a serious financial burden, but it can also worsen your credit score. Financing makes these credit card debts easy to pay and helps shorten the period of payment and can help ensure that your credit history is in the healthiest state possible.
How personal financing is used to pay off credit card balances
Compile a list of all outstanding credit balances and the associated interest rates
This serves as a tool to help you review all your debts and their expected amounts when interest is factored in. This list will provide you with the information you need when applying for refinancing or when estimating the total loan amount necessary to clear up the debts.
Investigate loan rates and transfer the balances to the lowest interest option
The second step is to review all the rates and compare them with the ones from the financing you want to use in consolidation. After comparing the rates, discover which side has higher rates and then do what is necessary.
You should only proceed with consolidating your credit card loans if the rates offered are lower than the credit card rates. If not, you will end up with an increased loan burden. If the financing option doesn’t have a lower rate, then you will end up with higher loan balances and actually pay more than what you would have otherwise. Therefore, it’s crucial to only consolidate your credit card balances if and only if the rates are lower than credit card rates.
Once approved, clear off the debts
Use the provided payment to pay off the credit card debts in full. You might do this by depositing the money into your bank account or using the credit card portal where you can make these payments securely.
Acting swiftly helps to ensure you don’t get tempted to use the money obtained to do other things unrelated to credit repayment. Put your credit cards far away to avoid overspending on them.
Ways of paying off credit card balances
Other than loan consolidation, there are other ways you can maneuver to ensure full repayment of credit card debts.
Refinance
Refinancing credit card debts involves transferring outstanding balances to a balance transfer card. This type of card does not charge any interest for the grace or promotional period which can range between 12 months to 18 months. However, you should note that this transfer is conditional since it depends on your credit score.
Only those with impeccable credit scores tend to qualify for such a card and qualify for the transfer. Another condition is that issuing companies can deduct a fee of 3-5% of the transaction amount.
Home equity loans
Also known as the line of credit, these are loans taken on a home or a property with the borrower having substantial equity on the property or home in question. Therefore, if you are not a homeowner, then you cannot use this kind of financing for your credit card balances.
The amount provided to you by the bank depends on the value of the property. The value of the property is determined by an appraiser.
Sign up for debt management programs
This is a plan that lets you roll several credit balances under a single monthly payment which charges lower rates. This move is preferred by those who struggle to repay their debts and do not qualify for the above alternatives due to bad credit history or because they don’t have a property used as collateral. However, this plan requires applicants to have a regular income flow.
The Bottom Line
It is advisable to use these financing options to refinance or consolidate your credit card loans as long as you trade higher rates for lower rates and not the other way around. If none of these is an option, you may also consider searching the web for an instant, payday loans.
Ultimately, these are the options available that may help you pay off credit card debt and potentially prevent a severe decline in your credit score.
However, you should note that all the options outlined above have both their positives as well as negatives. So, it’s prudent to go through each option available to you and seek advice from a financial expert so that you don’t end up in another financial nightmare after refinancing. It’s important to remember, regardless of which option you end up following, to be careful with the borrowed money, use it wisely (in this case pay off debt) and not end up in a similar situation in the future.
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