Credit Card Consolidation Loan: All You Need to Know

Credit Card Consolidation Loan: Your Complete Guide in 2021

If you follow this guide, you should be able to get a credit card consolidation loan easily and will pave the way to greater financial freedom.

credit card consolidation loan

So you’ve decided to bring together and consolidate all of your loans into one but don’t know where to begin?

Luckily for you, we’ve prepared this primer on debt consolidation and how to get a loan so you can combine all you need into one.

But why should you consolidate your credit card debt and loans together?

Is there really a point to that?

Is it really worth it to get a credit card consolidation loan?

Let’s find out!

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. 

What Are the Pros and Cons of Credit Card Consolidation?

There are many arguments to why you should consolidate your credit card debt and why it is best to keep things as it is. Here are the arguments.

Pros:

  • 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.

Cons:

  • May result in a hard credit inquiry which will lose some credit score points.
  • If not careful, the consolidated loan may have higher payments or interest rates. 
  • Many of these loans require you to have a good credit score.

Ultimately, the pros outweigh the cons and it’s something you should proceed with if you have multiple credit card debt from different sources.

If you do proper research and preparation, you can definitely find a loan that will bring together all your debt together into just one loan you need to pay. 

Where Should I Start in Getting a Credit Card Consolidation Loan?

As you may or may not know, there are around 5 ways to get your credit card debt consolidated. These we’ve found are the most effective.

These tips include the following:

  • Balance Transfer Credit Card. This allows users to transfer any balance that they may have in various credit cards into your new credit card that has a balance transfer option. Many that offer balance transfer have favorable rates such as an initial 0% APR for maybe 12 or even 24 months, and low interest rates. 
  • Getting a Home Equity Loan. This is probably the easiest loans to get and has the cheapest rates available. It uses one’s house as collateral to give you a loan to pay for all your debt that has low interest rates and long term payment options. However, you need to make sure you keep your payments or you could lose ownership of your house.
  • 401(k) Loans. These loans are the least recommended option for debt consolidation as problems that you may have with the loan can cause significant issues with your retirement plan. This should be considered the last option.
  • Debt Management Plans. There are many companies that will assist you in consolidating your debt into one through a debt management plan. This includes not only credit card debt but all kinds of debt and loans.
  • Debt Consolidation through Personal Loans. This is the most common loan you can get to consolidate your debt. Since this is through a personal loan, the lender will need to get as much documentation on your capability to pay for the loan, collateral, and of course your credit score.

These steps have been proven to work in consolidating credit card debt and getting rid of debt as soon as possible with the lowest rates.

Now let’s take a look at getting personal loans.

Getting a Credit Card Consolidation Loan

credit card consolidation loan

One of the best ways to get credit card consolidation loans is through personal loans.

By taking out a personal loan, you can use the money to pay your multiple credit card debts then all you need to do moving forward is to start paying just that loan. 

Please remember, however, you will need to go through a loan application process to get a personal loan.

This may include a hard credit report inquiry which can affect your credit score.

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 balance transfer with credit cards in many 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.

There’s also a definitive term when you will be done making payments, unlike a credit card debt which is generally a revolving fund without a definitive end to your payments.

Loans You Can Get

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

Each type will give you different terms in regard to the monthly payments, the interest rates, and the timeframe for completing payments.

Let’s take a look at each.

Credit Union Loans

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.

This is probably the best option you can go for when getting a credit card consolidation loan.

Loans From Online Lenders

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 note though that rates and premiums tend to be higher for online lending rather than from credit unions mainly because no credit check was made.

However, documentation for a good payment history may give you better rates.

Bank Loans

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.

Generally speaking, bank loans are the hardest to get and are the ones that charge the highest for loans.

If you are trying to get a bank loan, check the payment terms are actually better with this one than keeping your multiple debts.

credit card consolidation loan

Final Thoughts

For the most part, credit card consolidation is the way to go to take care of much of your outstanding debts with better payment terms, lower interest rates, and monthly fees.

If you follow this guide, you should be able to get a credit card consolidation loan easily and will pave the way to greater financial freedom.

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Author: John Benares

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