Debt Help | How to Consolidate Credit Card Debt

How to Consolidate Credit Card Debt

When needing a quick fix to pay off your mounting credit card debt, consolidating your debt may be one of your only options to avoid bankruptcy or continued years of credit card debt. Debt consolidation, in other words, entails paying off all your various outstanding credit card bills in one swoop, and leaving you with one substantial pile of debt to pay off – rather than dozens. This can be an attractive choice for sure, especially when certain methods of debt consolidation offer lower interest rates than the mean credit card companies charge. In addition, paying off only one bill or loan per month is a hell of a lot easier than dealing with multiple sources of debt. However, debt consolidation has its tricks, and you need to watch out for the growing risks of consolidating your credit card debt before they become worse than the debt you had in the first place.

One way some choose to consolidate their debt is by applying for a home equity loan. By leveraging the value of your residence, you can receive the funds needed to pay off all your current credit card debt. However, this option leaves you with a huge risk: either pay off your home equity loan, or risk losing your house. If you default on your loan, the lender can potentially foreclose on your house, which ultimately is much worse than just having good old credit card debt to pay off. However, if you know for a fact you can pay off this loan in a reasonable amount of time, consolidating your debt this way should be quick and painless: you’ll quickly pay the debt you owe, and although now you’ll have to pay off your home equity loan, you’ll generally have a lower interest rate on the loan than you would have had on your credit cards.

Another, less risky option includes taking out a debt consolidation loan. Like a home equity loan, a debt consolidation loan allows you to take care of all your outstanding credit card bills at once; you get the loan, you pay off your debt, and then you make a single payment on that loan each month, rather than writing out separate bills for each of your credit cards. A word of caution, however: make sure the fees and rates associated with your loan truly are better than those associated with your current credit cards. Chances are, the rate they charge you won’t be so low since you’re not leveraging any of your assets (like you home, for example). Furthermore, make sure you compare prices and find the loan that’s right for you, or else you’ll continue to ensnare yourself in debt trouble down the road.

Finally, be wary of zero-percent credit cards. You’ll get offered credit cards that will entice you with no interest payments, so you think you’ll be able to pay off your credit card debt with one credit card that won’t charge you interest. If it sounds too good to be true, it’s because it is. Once you miss one payment, that “zero-percent” rate will no longer be zero, and then you’re back to the same debt spiral you were trying to get yourself out of in the first place. Furthermore, hidden fees and costs are also important to watch out for when something like a zero-percent credit card sounds too good to be true.