The 2021 Complete Guide to Credit Card Consolidation

The 2021 Complete Guide to Credit Card Consolidation

With a better understanding of how credit card consolidation works and following just a few tips, you can well be on your way to become debt-free and gain financial freedom.

credit card consolidation

Everyone nowadays has some sort of balance on a credit card.

However, for those stuck in debt, they may find themselves with a balance on more than one credit card.

The truth is that when you have multiple balances on multiple credit cards, it becomes harder and harder to track payments and due dates not to mention that it can actually be more expensive as the credit cards would probably have different interest rates and penalties for late payments.

It can also have a negative effect on your credit score which could be a detriment to your loans, credit, and insurance opportunities in the future.

But what can you do? The answer is credit card consolidation!

But what does that exactly mean?

What Is Credit Card Consolidation?

Credit card consolidation comes from the idea of debt consolidation, which refers to the idea of getting a new loan to pay off all your other liabilities and consumer debts.

This brings multiple debts combined into one single, larger debt that generally has better payment terms like lower interest rates and lower monthly payments.

Credit card consolidation works in the same way where all the debt you may currently have from one or more credit cards is transferred to one single credit card.

Many credit card companies offer this facility so you just need to find a company that offers the best terms. 

Why Should You Have Your Credit Card Debt Consolidated?

If you have multiple credit card debt, consolidation comes with several benefits that will work well to get you out of debt and get a better credit rating.

  • Lower interest rates and lower monthly payments
  • One account to pay for your debt rather than multiple accounts.
  • Easier to track payments and due dates.
  • Better credit ratio (number of debt vs the number of open accounts).
  • Creates a better payment history which in turn can lead to better credit scores.

Where Do I Start With Credit Card Debt Consolidation?

If you have lots of credit card debt that you would like to consolidate into one debt, then keep reading as this article is for you.

Be reminded that if the lender you will tap for credit card consolidation does a hard inquiry on your credit, it can hurt your credit score.

In the long run, however, it will still be good for your credit history and your debt management overall.

The most effective ways to do credit card consolidation are the following:

  • Refinance your credit by using a balance transfer on a credit card.
  • Consolidate your debt through a personal loan.
  • You can tap home equity.

Let’s look at each of these ways, shall we?

Refinance Your Credit by Using a Balance Transfer on a Credit Card

credit cards ftr
Credit card of VISA, AMERICAN, and Master are arranged for a photograph on 11 September 2017, in Hong Kong, Hong Kong. Photo by (studioEAST/Getty Images)

Many credit card companies offer a balance transfer where people can transfer the balance of their existing credit card to their new credit card.

Several credit card companies offer a 0% balance transfer that you should really take advantage of.

The way it works is that you can transfer the balance that you have on one card and put it into the new card but since it has a 0% balance transfer, you won’t be charged an interest rate.

So as long as you can pay the regular monthly payments, you won’t be charged interest and you can combine as much debt as the limit of your new credit card will allow. 

Please be advised that you normally need to have a decent credit score to qualify for this kind of card and service.

Also, take note that a balance transfer fee and/or annual fees may apply.

Since you might also get hit with a credit score inquiry, you should do your research before you settle with getting a certain card with great balance transfer terms. 

Consolidate Your Debt Through a Personal Loan

Another way of credit card consolidation is by taking out a personal loan that you can pay into your credit cards.

You will need to go through a loan application process which may include a credit report inquiry so make sure you know which plan to get before you apply for one.

But with this process, you can actually get fairer monthly payment terms and lower interest rates than you might get with credit cards in some cases.

As it’s a set loan, there would be little to no change in your monthly payment terms or your interest rates so you actually won’t be caught off guard with bill shock with sudden changes with your bill. 

You can get an unsecured personal loan from a credit union or get loans from an online lender or bank.

Credit unions are not-for-profit lenders that typically offer members loan terms that are flexible and better rates than online lenders can offer.

This works well as they can offer those loan terms even if you have a credit score of 689 or lower.  

Online lenders, on the other hand, allow you to pre-qualify for a credit card consolidation loan that won’t affect your credit score.

This is because it can give you an estimated rate for your premiums without having to do a hard inquiry on your credit and prevent deduction on your FICO credit score.

Please take note though that the best and lower rates go to those with better credit.

You can also try getting a bank loan as they can offer competitive rates but often only for those who have good credit scores.

You may not be approved if you have a poor credit score and if you are qualified, you might still be charged a huge amount on your premiums. 

credit card consolidation

Home Equity Loans

If you own your home, one way to consolidate your credit card debt is by getting a home equity loan.

This is a lump-sum loan that comes with a fixed interest rate.

It uses your house as collateral for this loan.

Often getting loans this way comes with much lower rates than you can get from personal loans or even balance transfer credit cards and allows for long payment terms so it allows for a low monthly payment as well.

Do remember though that if you aren’t able to keep up with payments that you can lose your own house.

Other Ways for Credit Card Consolidation

If the previous steps don’t work for you, you can also attempt to do the following for credit card consolidation

  • Get a 401(k) loan. This is an available option to you if you have a 401(k) or retirement plan. However, please note that taking out a loan against your 401(k) can have significant effects on what you can get from your retirement plan when you actually do retire. This is why we recommend this as a last option.
  • Debt Management Plan. Another option is by getting a debt management plan that consolidates all your debt into one payment plan. This is best for those who are struggling to pay off their debts and don’t qualify for other methods because they have really bad credit scores. Please note, however, that if you don’t have a regular income or you foresee that you cannot really keep up with debt payments, filing for bankruptcy might be a better option.

credit card consolidation

Final Thoughts

Credit card consolidation can often feel very confusing.

But it does not have to be.

With a better understanding of how credit card consolidation works and following just a few tips, you can well be on your way to become debt-free and gain financial freedom.

You are surely able to find the right plan for you this 2021.

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Author: John Benares

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