Ways To Consolidate Credit Card Debt
For those deep in credit card debt, a consolidation loan is the best DIY way to consolidate loans with high interest. And best of all they don’t require a third party. There might be a balance transfer fee or new APR interest rate, but overall it’s a lot less costly than other options.
The problem is that if you’re not financially disciplined, a debt consolidation loan won’t save you. In fact it will only exacerbate your debt problem. Before acting you should use caution and careful plan your get-out-of-debt strategy before you commit yourself and your family to a debt consolidation loan.
Having a good credit score certainly helps, but you can get a consolidation loan with a bad credit score too. If you lack the credit and don’t have assets to do an unsecured load, then you may need cosigner for it; preferably a parent, spouse, or sibling.
Some of the assets that can help secure a loan include a 401k retirement plan, stocks, or a home that has built up enough equity, or a car.
There’s different types of consolidation loans to choose from. For most of them you can apply directly online and get your answer right away.
Below are the four best ways to consolidate credit card debt.
1. Credit Card Debt Consolidation Loans
Credit card debt is the worst kind of debt you can have. They carry extremely high interest rates which can be very hard to pay back. The secret for credit card companies is to offer low interest rates and high credit limits to people likely to over-spend and won’t default.
The advantage of a credit card debt consolidation loan is that you’ll be able to pay back your credit card debt at a much lower interest rate. Even though you’ll have to pay interest on the loan it should be significantly less. Credit cards carry 20-28% annual interest, possibly higher depending on the type of credit card and your credit score.
Most of debt consolidation loans carry an interest rate ranging 9-15% annually.
Depending on how much credit card debt you have a lower interest can save you thousands of dollars over the next year. It’s worth doing.
2. Bad Credit Debt Consolidation Loans
Debt consolidation loans for people with bad credit do exist. Depending on your credit score it might be hard to obtain, but having some sort of collateral to secure the loan will help you negotiate better terms. If you have assets that the bank can use as protection in case you default you shouldn’t much trouble getting approved.
Below is a quick overview of secured vs unsecured loans.
Secured Debt Consolidation Loan
For consumers with a bad credit score, a secured debt loan may be the only option. It requires the borrower to provide an asset as collateral in case of default. Typical assets include a second mortgage on a house or title loans a car (or vehicle).
Because the lender’s loan is protected with collateral from the borrower, the interest rate of a secured loan is going to be lower than that of an unsecured loan. But, if the borrower cannot repay the loan, then the lender has the legal right to take possession of the asset.
Unsecured Debt Consolidation Loan
An unsecured debt consolidation (or an unsecured loan) is a loan without collateral. If the borrower defaults on the loan, the lender has no way of getting their money back. Unsecured loans are not protected against chapter 7 or 13 bankruptcy. Since unsecured debt loans carry higher risk for the lender, the interest rate for the borrower is significantly higher.
3. Low interest Rate Loans
Low interest rate loans can be the best way to pay off unwanted debt. Low interest rate loans can be obtained if you have elite credit. If you have great credit financial institutions are more than willing to give you an affordable loan.
Credit scores that hover around 720 have the best chance of getting an approved for a low interest loan. Ideally you’ll be able to negotiate for a fixed interest rate and not a variable one.
Fixed interest rates provide a fixed monthly payment. A variable interest rate is subject to specific terms and penalties may apply. It’s important to read the fine print.
In many instances banks offer low adjustable-rate loans as a way of getting people to sign-up. These predatory loans can cost you an arm and a leg in the future if rates rise. You can read about Variable APR rates on credit card debt here.
4. Government Assistant Debt Consolidation
The federal government has different programs to help you consolidate your debt. The Federal Family Education Loan & Direct Loan Program are some of the best government options for people who carry student loan debt. Both of these programs fall under the Higher Education Act of 2008 and can be used for loan consolidation.
Government assistance can be helpful for student loans students looking to pay off some of their debt that they have incurred during college.
Alternatives For Debt Consolidation Loans
Credit card debt consolidation loans are more popular than ever before. Because of the Coronavirus pandemic economic hardship has started to impact all areas of the market; from the local grocery store to the mom-and-pop coffee shop on main street.
You should know that debt consolidation loans are good if you plan on paying them off. Too many consumers use them as a crutch to open up more lines of credit and will go deeper into credit card debt.
When you take on a debt, whether that is a car loan, a credit card intro rate, or mortgage you are assuming that you will be in the same financial standing you were when you took on the debt as you will be in the future.
The last-resort plan if you can’t afford to pay your debts is to file for bankruptcy. Hopefully this isn’t the case for you, but if so, here is our list of what you need to legally file bankruptcy.
Remember that personal financial decisions shouldn’t be made on future projections. If you are at a point where your debt is becoming unmanageable, it’s time to start holding yourself accountable.
Best Ways To Consolidate Credit Card Debt
If you’re in debt the best advice I can offer is to be financially disciplined. Even the best ways to consolidate credit card debt won’t help if you continually over-spend. Making a weekly and monthly budget might be needed to help lower your expenses.
Overall, consolidating your debt for a lower interest is worth the effort. Take time to research the different options you have or give us a call at 1-855-Jet-Debt and talk with a financial debt advisor.