Learn how to use a credit card debt consolidation loan to get your finances in order. In the United States, total credit card debt is around $800 billion. That’s a lot of MasterCard and Visa debt owed by your friends and neighbors. The average interest rate on a card is also over 13 percent and still rising. Thanks to the new bankruptcy laws, banks can now charge interest rates of 25 percent, 30 percent, and more. There are many benefits to a consolidation loan.
Avoid default and bankruptcy issues by taking positive action now. Balance transfers are convenient but not a long-term solution. One card debt consolidation option for homeowners is a mortgage refinance.
Benefits of a credit card consolidation
If you own a home and opt for a secured loan, your interest rates are generally lower.
Since credit card debt consolidation loans often have lower interest rates, your monthly payments may also be lower. Plus, you’ll only have to make one payment to a single creditor. Keep in mind that even if your monthly payment is lower, the term of your loan is usually longer.
Balance transfers are not the same as debt consolidation
Balance transfers are not a permanent solution. Sometimes a lower APR is just a temporary introductory rate. Balance transfers are often subject to fees that are either a percentage of the amount transferred or a specific dollar charge. Balance transfers are easy and convenient, but they’re the equivalent of moving your credit card debt. You’re still subject to late fees, high interest, and over-limit fees if you load the balance on your new card.
Homeowners have additional loan options
If you’re a homeowner, one option is to refinance your first or second mortgage and use the extra cash to pay off your higher-interest rate credit card balances. A first mortgage is typically refinanced at a lower interest rate than a second, which is typically a home equity line of credit (HELOC) or home equity loan. An important fact to consider is that this turns your unsecured credit card debt into secured debt. This allows for a lower interest rate that is priced. It will guarantee the new debt secured by your home in most cases.
Finding a card debt consolidation loan
A great way to find a credit card consolidation is to search online. Just type “credit card debt consolidation loan” into Google or your favorite search engine. Many of the consolidation loan providers will allow you to apply online for faster approval. If you are a homeowner looking to refinance a mortgage, you may want to consider any of the major brokerages or contact your local mortgage broker as well. Also check with friends or family for a recommendation, they may have already done the research for you.
With good or bad credit, a consolidation loan is not without its risks.
Getting a credit card debt consolidation loan is not without risk. Research a debt consolidation company before you sign anything. Beware of additional or hidden fees. Check with the local Better Business Bureau for the loan provider. A good credit score usually means you can qualify for the best interest rates available. Even if you have less than perfect or even bad credit, there may still be credit card debt consolidation loan options for you.
If you’re having trouble racking up new credit card balances after consolidation, you may need to consider other options. Working with a debt counselor and setting up a debt management program might be an appropriate first step. Credit counseling is also offered by several agencies and is another debt consolidation option to consider.
Ultimately, you need to change your spending habits. If you apply for a loan and then accumulate high balances on your credit cards, then you will be in a worse financial situation than when you started. Think about your financial goals and level of discipline, then decide if a credit card debt consolidation loan is right for you.