Managing multiple credit card debts can be overwhelming, with varying interest rates and payment amounts to keep track of. However, debt consolidation can help simplify the process by combining all your monthly payments into a single one, usually with a lower fixed interest rate. Here are a few effective ways to consolidate credit card debt.
In This Article
Evaluate your financial situation
Before you consolidate your credit card debt, it’s helpful to take stock of your financial situation. Of course, this usually starts by adding up your credit card debt and the minimum payments attached.
Not only should you review your credit card balances, but also take a closer look at how you ended up in this position. If you find that you are consistently spending more than you can afford, then debt consolidation may only provide a short-term solution to a larger issue.
Even if you don’t have a spending issue, take the time to determine what you want to get out of debt consolidation. In most cases, borrowers want to lock in a single monthly payment with a lower interest rate attached.
But you might also be looking for a lower monthly payment to make your budget work. Other borrowers are looking for a way to simplify their multiple credit cards into a single loan for easier debt management.
Explore your loan options
When consolidating debt, it’s important to choose a debt consolidation loan that meets your individual needs. Common options include:
- Personal loan: An unsecured personal loan doesn’t require collateral but usually has higher interest rates than secured loans.
- HELOC: A home equity line of credit (HELOC) uses your home equity as collateral and gives you access to a credit limit to use as needed. During the draw period, you can borrow and repay up to your credit limit, similar to a credit card.
- HELoan: When you take out a home equity loan (HELoan), you use your home equity as collateral. However, you’ll receive a lump sum payment upfront and start repaying the full balance immediately through fixed monthly payments.
- Balance transfer credit card: A balance transfer offer may include an introductory rate of 0% for a set period, which can help you pay down your balance without dealing with high interest rates.
Read more: Is a Credit Card Balance Transfer Right for You?
Shop for the best rate
Interest rates can vary significantly from one lender to another, and each lender uses a unique approach to determine rates. Some lenders may consider a borrower’s credit score, while others may factor in income and debt-to-income ratio.
Comparing rates can help you save a considerable amount of money over the life of the loan. By exploring multiple options, you can identify the best possible interest rate for your loan, ensuring that you save money and avoid overpaying.
Read more: What Is APR?
Apply for the loan
When you find the loan that’s right for your needs, it’s time to apply. Be prepared to provide extensive information about your financial situation, including your income, housing costs, and more.
If your loan application is approved, you can use the funds to consolidate your credit card debt. Consolidating your outstanding balances into a single payment can simplify managing your finances and potentially save you money by reducing fees and interest rates.
Ensure to use the funds from the loan for this purpose only to avoid additional debt and financial challenges.
Stick to your new budget
It’s important to be truthful with yourself about how you ended up with credit card debt. If you were spending more than what you could afford, then following a new budget may feel restrictive at first. However, it’s crucial to understand the reasons behind your debt to avoid falling back into the same patterns.
Within your new spending plan, make room for your new debt payment and your essentials first. Avoid spending more than you can afford as you pay off debt.
Consolidating credit card debt: Is this the right move for you?
It’s possible to consolidate credit card debt. In the best case, this will lead to a single monthly payment that you can comfortably fit into your budget as you dig yourself out of debt.
However, before taking a debt consolidation loan, it’s important to assess your spending habits. If overspending is the root of your financial troubles, it’s better to work on correcting this before getting a loan.
Written by Sarah Sharkey | Edited by Rose Wheeler
Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She lives in Florida with her husband and dogs. When she’s not writing, she’s outside exploring the coast. You can connect with her on her blog Adventurous Adulting.
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Eligibility for a home equity loan or HELOC up to the maximum amount shown depends on the information provided in the home equity application. Depending on the lender, loans above $250,000 may require an in-home appraisal and title insurance. Depending on the lender, HELOC borrowers must take an initial draw of the greater of $50,000 or 50% of the total line amount at closing, except in Texas, where the minimum initial draw at closing is $60,000; subsequent HELOC draws are prohibited during the first 90 days following closing; after the first 90 days following closing, subsequent HELOC draws must be $1,000, or more, except in Texas, where the minimum subsequent draw amount is $4,000.
The amount of time it takes to get funds varies. It is measured from the time the lender receives all documents requested from the applicant and depends on the time it takes to verify information provided in the application. The time period calculation to get funds is based on the first 4 months of 2023 loan fundings, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period.
For Texas home equity products through Prosper, funds cannot be used to pay (in part or in full) non-homestead debt at account opening.
Depending on the lender, qualified home equity applicants may borrow up to 80% – 95% of their primary home’s value and up to 80% – 90% of the value of a second home. In Texas, qualified applicants may borrow up to 80% of their home’s value. HELoan applicants may borrow up to 85% of the value of an investment property (not available for HELOCs).
Home equity products through Prosper may not be available in all states.
All home equity products are underwritten and issued by Prosper’s Lending Partners. Please see your agreement for details.
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