Credit Card Consolidation

What is credit card consolidation?

Find the best way to reduce credit card debt so you can set a target date to pay off your credit cards on your calendar. Credit card consolidation refers to any solution that takes multiple citation card balances and combines them into a single monthly requital. The main goal is to reduce or eliminate the concern pace applied to the balance. This makes it faster and easier to pay off credit poster debt. alternatively of wasting money on matter to charges, you can focus your money on paying off principal—that ’ s the balance your actually owe. In many cases, you can get out of debt fast, even though you pay less each month. Credit card consolidation basically gives you a more efficient way to eliminate debt .

Options for credit card consolidation

There is more than one room to consolidate credit card debt—in fact, there are three basic solutions. Two are do-it-yourself and involve taking out new financing to pay off your existing credit circuit board balances. The second takes professional avail. You set up a refund design through a credit rede agency. But you even owe your original creditors .

  1. credit card balance transfer consolidates credit card debt by moving your existing balances to a new balance transfer credit card. These cards offer 0% APR introductory rates on balance transfers, giving you a limited time to pay off debt interest-free.
  2. With a debt consolidation loan, you take out an unsecured personal loan at a low interest rate. You use the funds from the loan to pay off your credit card balances. This leaves only the low-interest loan to repay. There is also a secured version of this where homeowners borrow against their home equity, but that can be risky.
  3. debt management program is basically a professionally-assisted debt consolidation program. You set up a repayment plan you can afford with the help of a certified credit counselor. Then they negotiate with your creditors to reduce or eliminate interest charges.

Identifying the best means to consolidate credit card debt out of these three options depends on your fiscal position. That includes how much you owe, your credit score, and how much money you have available for monthly payments .

Step-by-step instructions for credit card debt consolidation

now that you know what not to do and what you need to avoid when consolidating credit, you can start looking at how to consolidate credit batting order debt using each method acting. This will help you decide on the best way to consolidate given your fiscal situation.

Assessing your financial situation

This table can help you understand how to choose the best consolidation options for your needs .

Balance Transfer Debt Consolidation Loan Debt Management Program
Credit score needed Very good-excellent (FICO 740 or higher) Good-excellent (FICO 670 or higher) Any score is eligible, including bad
Recommended debt range Less than $5,000 Less than $25,000 $10,000 to $100,000+
Interest rate 0% APR introductory rate Target less than 10% APR Negotiated with each creditor; 0-10%, on average
Monthly payments As high as possible to pay off balance quickly Monthly payments may be lower than your total payment now Total credit card payments reduced by up to 50%

Balance transfer credit cards allow you to consolidate credit online balance transfers are the best choice for credit consolidation when you have excellent credit and a express total of debt. Balance transplant cards offer 0 % APR for a specify time after you open the score. The higher your score, the longer the 0 % APR time period .
The finish is to pay off your balance before the 0 % APR period ends. Once it does, the regular APR for libra transfers will apply, so your rate will basically be justly binding up where you started .

  1. Shop for a balance transfer card that offers low fees and the longest 0% APR teaser rate; teaser rates usually apply for 6-18 months, depending on your credit score.
  2. Apply for the best card that you find. Only apply for one card, because filing multiple applications can decrease your credit score.
  3. Once you open the account, begin transferring your balances. You can call customer service or set them up online. You’ll need the account numbers for all balances you wish to transfer.
  4. Be aware that there will be a fee applied for each balance transferred. Fees range from $3 per transfer to 3% of the balance transferred.
  5. With your balances consolidated, quickly pay down your debt. Ideally, you want to pay off the full balance before the teaser rate expires. So, divide your total balance by the number of months you have the teaser rate.

For example, let ’ s say you owe $ 3,000 on three accounts. You open a balance remove menu that offers 0 % APR for 12 months with a fee of $ 3 per transportation. You ’ five hundred pay $ 9 to transfer the three balances, giving you a full balance wheel of $ 3,009. To pay that libra off during the basic period, you ’ five hundred need to make payments of at least $ 250.75 per month .

How to consolidate credit card debt with a personal loan

Using a loanword to consolidate credit rating tease balances is another DIY option you can use if you have good accredit. You take out a loan the lowest concern rate potential and use the funds you receive to pay off your credit cards. This leaves only the loan to repay .
This is often the best means to consolidate citation card debt if you want lower monthly payments. Depending on the term you choose, you can significantly reduce how much you pay each month. But you still get out of debt faster than you would with traditional payments thanks to the abject APR .

  1. Shop around for the right debt consolidation loan. You want to aim for low APR, low fees and a term that will give you monthly payments you can afford.
  2. When you find the best loan for your needs, you apply. Only apply for one loan, because applying for multiple loans at once will hurt your credit score.
  3. Choose a term that offers monthly payments you can afford. A longer term means lower monthly payments, but higher total costs. A shorter term will reduce total costs, but it means higher monthly payments.
  4. Once approved, the funds are disbursed to pay off your credit card balances. In some cases, the lender will give you the money to disburse. In others, they’ll pay your creditors directly.
  5. Pay off the loan with fixed payments. If the loan doesn’t have any early repayment penalties, you can also make extra payments. For instance, pay off a big chunk of the debt with your next tax return.

Consolidating credit card debt through a debt management program

Couple listens intently to certified credit counselor as they review their options for debt relief If you can ’ thymine consolidate citation card debt on your own—either because you have a moo credit rating grade or besides a lot debt for a DIY solution—then you need to call in professionals .

  1. Contact a nonprofit consumer credit counseling for a free debt evaluation. The credit counselor will review your debts, credit, and budget to see if you can use do-it-yourself solutions. If not, as long as you have the ability to make monthly payments, you can usually qualify for a DMP.
  2. Your credit counselor will help you find a payment that works for your budget. Set up and monthly administration fees will be rolled into this payment. Fees are capped at $79 nationwide and set based on state regulations where you live.
  3. Then the credit counseling team calls your creditors to negotiate. They negotiate to reduce or eliminate interest charges and stop penalties that may be getting applied to your debt.
  4. Once all your creditors agree to accept payments through the DMP, your plan starts. You make one payment to the credit counseling agency each month. They distribute the money to your creditors as agreed.
  5. You still owe your original creditors. The credit counseling agency is basically there to be your advocate and help ensure you can stick with the program.

During a debt management program, all credit rating poster accounts you include will be freeze when you enroll. You won ’ metric ton be able to apply for newfangled accounts during the program. But this can be beneficial because it helps you break any credit colony that you ’ ve developed. The accredit guidance team besides helps you set a budget, so it ’ mho easier to live credit-free .
not surely which consolidation choice is mighty for you ? Talk to a certified credit advocate for a detached, no-obligation debt evaluation .

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A real example of credit consolidation

credit cards have relatively high gear interest rates compared to other types of debt. Credit consolidation solutions allow you to lower the interest rate applied to the balance. As a leave, more of each monthly payment gets applied to the principal balance. This allows you to get out of debt debauched, save money on interest charges, and—in many cases—lower the monthly payment .
here ’ s an model of how it works when you use a debt management broadcast to consolidate. Let ’ s say you have four credit cards .

Current Balance Interest Rate (APR) Monthly Payment
Credit card 1 $4,002 20% $160.08
Credit card 2 $3,375 17% $135.00
Credit card 3 $4,846 21% $193.84
Credit card 4 $3,475 14% $139

Total current balance:  $ 15,698
Average interest rate (APR):  18 %
Total monthly payment:  $ 627.92
Estimated time to pay off total balance:  11 years, 1 calendar month
Total estimated interest charges: $ 8,912.98
then you consolidate the debt with a debt management program. The credit rating counseling team works with your creditors, who agree to reduce the matter to rates applied to your balances. They besides agree to accept reduced monthly payments .

Current Balance New Interest Rate (APR) New Monthly Payment
Credit card 1 $4,002 8% $81
Credit card 2 $3,375 7% $75
Credit card 3 $4,846 6% $85
Credit card 4 $3,475 1.9% $62

Total current balance:  $ 15,698
New average interest rate (APR):  5.73 %
New monthly payment:  $ 303
Time to pay off total balance:  4 years, 10 months
Total estimated interest charges: $ 2,459.65
In this example, consolidation would :

  • Lower your monthly payments by $324.92
  • Allow you to get out of debt six years and three months sooner
  • Save you $6,453.33 in interest charges

You placid pay back the full balance owed, but you do it in a more efficient way by minimizing interest ( APR ). consolidation lowers your monthly payments, the number of payments you need to make to become debt-free, and the sum interest charges .
While balance transfers and debt consolidation work differently, the leave is the same. You still minimize interest, combine your debts into one monthly payment, and enjoy the like benefits that you see in the case above .
If you have questions about debt consolidation or need avail finding the best way to consolidate, spill to a certified credit counselor for complimentary .

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10 things to watch out for when you consolidate

10 warnings to heed when you consolidate credit card debt Using credit calling card consolidation to become debt-free takes the right scheme and discipline. You need to make certain that it ’ s the right fit for your position and then follow through. Heeding these warnings can help you make certain that credit consolidation will be a successful solution for you. Always consider your fiscal situation carefully before you consolidate. If you ’ ra not sure if consolidation is proper for you, call (844) 276-1544 to receive a release evaluation from a certified recognition counselor .

10 Warnings to Heed When You Consolidate Credit Card Debt

These are the biggest pitfalls that consumers run into when they consolidate credit wag debt .
The biggest error people make after consolidating accredit card debt is that they don ’ triiodothyronine stop making fresh credit card charges. If you ’ re trying to pay off debt, you need to focus on elimination. New charges fair set you farther back from your goal—it ’ s like two steps ahead, one step back .
A Consolidated Credit node named Carol ran into this problem when she consolidated on her own using a counterweight transfer credit card. She used the card to consolidate her debt, but she hadn ’ triiodothyronine balanced her budget. As a resultant role, she ran up new balances cursorily .
[ bctt tweet= ” “ I should have left the other credit cards entirely once I transferred my balances, but I still needed them to cover basic necessities. ” – Consolidated Credit Client Carol # debtconsolidation ” username= ” consolidatedus ” ]
The right way:  Before you consolidate, you need to  set up a household budget. The goal is to cover all your bills and necessary expenses with income. This helps you avoid relying on your credit cards to cover everyday needs. If you can ’ t cover all your daily expenses without credit, then consolidating your debt has a higher casual of bankruptcy .
For consolidation to be effective, you need to reduce or eliminate interest charges applied to your debt. Otherwise, you don ’ t generate the cost savings you need for this to be an effective direction to eliminate your balances. This means you need at least a estimable or excellent credit score to qualify for do-it-yourself debt consolidation at a full, low-interest pace .
If you don ’ t have good credit rating and you try to do-it-yourself, the rate you will qualify for may be besides high gear to provide the benefit you need. Interest charges will eat up every requital you make, making it impossible to eliminate debt cursorily or efficaciously .
The right way:  Your goal when consolidating should always be to get the concern rate ampere close as possible to zero. At most, the rate should be less than 10 % to make consolidation an effective solution for you .
Most credit cards are unsecured debt. That means that there ’ s no collateral in stead to protect the creditor in casing you default. That ’ mho different from procure debt, like a mortgage which uses your home as collateral. In this sheath, if you default on your mortgage, the lender will take your home and sell it to recoup their losses .
Some people think base fairness loans are a good way to consolidate credit calling card debt. however, this efficaciously converts unguaranteed debt into secured. now, if you fall behind, you can be at hazard of foreclosure .
That ’ s what happened to Carol after her balance transfer solution didn ’ thyroxine exploit. A creditor advised that she could take out a second mortgage to pay off her credit cards. unfortunately, that precisely made her fiscal position bad .
“ My mortgage payments went up to $ 2,000, ” Carol explains. “ I could scantily make the payments, but merely if I started charging my daily needs on credit cards again. And out of that $ 2,000, I was paying over $ 1,000 a calendar month in pastime on the mortgage. ”
The right way:  Keep unguaranteed debt unbarred. Borrowing against your home equity increases your risk of foreclosure. If you can ’ t make the payments on a recognition circuit board, it can lead to collections. But if you can ’ t make the payments on a base fairness lend or HELOC, you risk losing your home !

Read more: 580 Credit Score

In most cases, you should expect some kind of monetary value associated with consolidating your debt. Some fees are convention. however, excessive costs mean you have more to pay off. so, while you should expect some add costs, avoid high fees when possible .
For exemplar, let ’ s say you want to use a credit wag remainder remove to consolidate. Almost any libra transplant citation card you choose will have a fee that ’ s applied for each proportion transferred. Some have a $ 3 fee per transportation, while others are 3 % of the balance you move. That ’ s a adult remainder. If you transfer $ 25,000, then the 3 % batting order will increase the cost of debt elimination by $ 750 .
It ’ second authoritative to note that fees for debt management programs are set based on your budget and rolled into the payments for the program. These fees are regulated by states and capped at $ 79 countrywide. The median client pays around $ 49 .
The right way:  Make certain you understand costs and fees before you consolidate. Compare options to find the lowest fees possible with the solution you want to use. For exercise, compare balance transfer fees on different cards before you apply .
Let ’ s be honest, most people would prefer to solve their own debt problems on their own. It ’ s not easy to let person into your fiscal earth, specially if things aren ’ triiodothyronine precisely going well. But using a do-it-yourself solution from a weak fiscal placement is a recipe for calamity .
The right way:  If you owe more than $ 30,000 or have a bad citation score, consolidating on your own can be bully. You may be better off asking for avail .
When people foremost consolidate, they ’ re excited that they last have a solution to pay off their debt. so, they ’ re will to do whatever it takes to reach zero. however, as time passes, it ’ s comfortable to get tired of sticking to a budget and cutting back. As prison term passes, you slip back into bad spend habits and may start making fresh charges again .
With debt management program clients, we normally see this slump around the six-month bell ringer. Keep in mind that registration in a debt management broadcast is wholly voluntary. however, if you drop out your creditors are probably to restore your original concern rates and can even reapply penalties .
The right way:  First, choose a solution that gets you out of debt angstrom cursorily as possible. Anything longer than 60 payments ( 5 years ) is by and large excessively long to keep up with effectively. And always remember, while debt elimination can be boring, it ’ s worth it in the end !
Don ’ deoxythymidine monophosphate confuse commercials that offer to “ settle your debt for pennies on the dollar ” with citation card consolidation. Consolidating credit cards—even with a debt management program—is not the lapp thing as a debt settlement program .
Debt consolidation always pays back everything you borrowed, to help minimize credit damage. By contrast, each debt you settle creates a negative note on your credit that remains for seven years after release .
The right way:  merely consider settlement once you ’ ve exhausted all other options. It should only be used for debts that are already in collections. And if you ’ re worry about damaging your credit, merely don ’ t do it !
If you consolidate on your own, then you can seek any type of new finance that you need. If you consolidate through a debt management program, you can qualify for loans like a mortgage or car loanword ; however, you can ’ t use for newly credit cards .
In any case, be identical careful with any new finance you take out while you repay consolidated credit rating menu debt. Consolidation much makes it easier to qualify, because it fixes your credit use ratio and helps build a positive credit history. Those are the two biggest factors used to calculate your credit score .
The right way:  even though you can qualify for a lend, it doesn ’ thyroxine mean that you should apply. Always consider your debt-to-income ratio cautiously. If you ’ re airless to your borrowing limit, a modern lend could make it tough to keep up with your bills. ideally, you want your debt-to-income ratio to be 36 % or less to make it easy to maintain stability .
once you complete a plan to repay your debt, you should besides complete a exhaustive review of your credit report. Creditor should automatically inform the credit chest of drawers that your score is paid or current. however, mistakes and errors happen frequently, peculiarly following a period of fiscal hardship. That means it ’ s up to you to make certain your credit report is up to date and that old errors aren ’ deoxythymidine monophosphate hanging around .
The right way:  Go to to download your credit reports from each credit agency for spare. then check them for the watch errors :

  • Make sure account information has been updated to reflect your zero balances.
  • If you go through a debt management program, make sure the credit history on each account shows that you made your payments on time.
  • Any paid collections accounts should show up as closed; if you negotiated with the collection agency to remove the account in return for payment, make sure it’s gone.
  • All your account statuses should be current.

If you find any mistakes, take steps to dispute them .
The last thing you want after all this work is to end up right back in the same position. then, visualize out how you ended up with thus much debt, and then take steps to adjust your fiscal habits. That room, once you get out of debt, you can stay that way .
The right way:

  1. Set up your budget
  2. Establish an emergency savings fund to cover unexpected expenses
  3. Never spend more than 10% of your income on credit card debt payments.

Of class, even the best-laid plans can get derail, particularly after a few years. The good news is that if you end up in the like position, you can consolidate again .

“ The current fiscal crisis has created a unique situation for people considering recognition consolidation, ” Consolidated Credit President Gary Herman explains. “ The Federal Reserve has dropped pastime rates american samoa low as potential to encourage borrowing in a down economy. That ’ south big for people thinking of getting loans to consolidate credit card debt .
“ On the early hand, lenders have tightened lend standards, with tougher credit score and debt-to-income proportion requirements. That makes it harder for people to qualify to take advantage of those depleted rates. ”

Low rates are favorable for consolidation

During an economic downturn like the one we ’ ra know immediately, the Federal Reserve will lower the Federal Funds Rate, which is the interest rate that fiscal institutions use to set their interest rates. The federal Funds Rate is presently near zero—it ranges from 0.00 to 0.25 .
That ’ second dear for consumers who want to borrow. Interest rates on assorted types of loans are a lot lower than they were before the downturn started. That means if you can qualify for a debt consolidation loanword, you can enjoy a low rate. It ’ s the qualification separate that can be challenging .

Approvals are harder to come by

While the Federal Reserve wants to encourage borrowing in a down economy, lenders want to limit their risk. This means that they lone want to extend loans to people that are probable to pay them back. They ’ ra intelligibly worried about defaults if people can ’ deoxythymidine monophosphate pay .
As a result, they “ tighten ” lend standards. This means you need a higher credit seduce and a lower debt-to-income ratio to qualify for new credit. This means that it ’ randomness presently tougher to qualify for debt consolidation loans and balance transfer credit rating cards .

Limited terms on new credit

Another direction that lenders and creditors protect against risk is to limit the terms they offer to newly customers .
For lenders, this means that they may cap personal lend limits. rather of allowing you to borrow up to $ 50,000, the lender may only offer $ 20,000 or lower, depending on your accredit. If you are considering a recognition consolidation loanword, you need to make certain you can qualify for a lend amount large adequate to pay off all your credit circuit board balances .
For credit card companies, there are two ways that they limit terms during an economic downturn. One is to offer a lower credit limit on the menu. The other is to reduce the 0 % APR period you enjoy when you inaugural open the account .
“ Two years ago, credit card companies would offer 0 % APR for up to 24 months on counterweight transfers, ” Herman explains. “ These days, most creditors limit that introductory period to 12 to 18 months. ”
This is crucial for people considering getting a poise transfer card to consolidate. Let ’ s say you want to consolidate $ 12,000 in credit card debt. With a 24-month 0 % APR period, you could pay off the entire balance during the interest-free period with $ 500 payments. however, if the basic period is only twelve months, you would need to pay $ 1,000 per calendar month .

Does the downturn affect consolidation with a debt management plan?

“ The full news program is that the limitations that you see with do-it-yourself debt consolidation don ’ deoxythymidine monophosphate affect people who want to consolidate with a debt management plan, ” Herman says. “ There are never any credit score or debt-to-income proportion requirements you must meet to enroll in a debt management broadcast. You can use the program regardless of how low your credit score is or how a lot debt you need to consolidate. ”
This means that people who want to consolidate still have a way to do so even if they can ’ t qualify for the do-it-yourself options .
“ Credit calling card companies want to work with people, ” Herman encourages. “ Working with a credit counseling organization like Consolidated Credit shows them that you ’ re serious about give back everything you charged on your recognition cards. therefore, we can work with them to reduce or eliminate the matter to charges applied to your balance and find a monthly requital that you can afford. It ’ s a great means to consolidate for those who can ’ t successfully consolidate on their own. ”

Consolidated Credit offers proven results in credit consolidation

In closely 30 years, Consolidated Credit has helped consumers consolidate over $ 9.75 billion in credit tease debt. In 2020 alone, we helped over 17,000 Americans consolidate over $ 232 million in credit circuit board debt .
This map shows the average remainder that consumers had in each state when they consolidated. You can besides hover over each state to see how much debt we consolidated for clients in each submit in 2020 .
Keep in mind that we understand that credit consolidation is not the right solution for everyone. As we said in the introduction, this is not a fiscal silver bullet train that will work in every situation .
As a nonprofit organization credit counseling organization, our certified credit counselors will entirely recommend a debt management plan if it is the best debt solution to use in your situation. so, while we provided release credit guidance to over 628,000 people last year, only roughly 17,000 went on to consolidate with us .
For others, some received recommendations to apply for credit consolidation loans or balance transplant cards. If a counselor sees that you should be able to consolidate successfully on your own, they can confirm that for you.

In early cases, the people who received credit rede were just not a good fit for consolidation in their current position. many were face unemployment and bemused income. While citation consolidation may lower person ’ s monthly payments, those payments need to be made .
If you don ’ t have the income to consolidate, then you may need to wait for your site to improve or consider other debt relief options, such as bankruptcy .
talk to a certified credit counselor to find the best accredit consolidation option for your needs .

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