Personal Loans
One of the most common ways to consolidate your credit card debts is to reach out to your local bank or credit union and request a debt consolidation loan. The application processes can often be completed over the phone or online. What’s great about these loans is that they often offer flexible terms, with some ranging from 1 to 7 years in term, and establish a consistent month-to-month payment due, which assists in budgeting. As a bonus, some financial institutions will make a payment directly to the creditors, saving you the hassle.
Do be aware that your interest rate is likely determined by the term of the loan and your credit score. Loans may also be subject to origination fees, which add to the overall cost of the loan.
Often the four big metrics used in lending are income, credit score, total assets and total debts. Some underwriters add in a few nontraditional metrics in their loan approval process. During the underwriting process, metrics such as educational level, length at current residence and even job history can lead to an approval where a bank may not have. This is especially useful for newer borrowers who may not have a robust credit profile established.
There are a few drawbacks, such as the potential for origination fees and fewer loan terms to choose from. Rates are comparable for those with a good credit score but could be much higher if your credit score is on the lower end.
Debt Consolidation Programs
A debt consolidation program is usually a service for borrowers where your credit cards are combined into a single payment. From there, you usually make a single payment to the program which would then forward the payment to your creditors. Do not confuse this with a debt consolidation loan, where a loan is granted that payoffs your existing debts. Your existing debts are still there but may be more manageable.
Ideally, your program’s monthly payment is less per month than making all of your payments individually. That also means that more of the payment goes towards paying down your existing debts. Debt consolidation programs work with your creditors to help reduce interest rates on debts and eliminate varying fees such as late fees, though neither is promised. Some debt consolidation programs may require the closure of some or all of the cards that you are consolidating, so be sure to double check if your goal is to keep your cards.
If you’re looking for help overcoming debt repayment challenges impacting your credit, you can contact an accredited not-for-profit credit counsellor.
Balance Transfer Credit Cards With 0% Interest
Many credit cards offer an introductory offer of 0% APR on balance transfers for a limited amount of time after opening the card. While they still may be subject to balance transfer fees (typically 3% to 5% of the balance being consolidated), they often offer 0% introductory periods, typically of six months to a year. During that time, you do not have to worry about the balance accruing any additional interest.
The MBNA True Line Mastercard for example, is an excellent option for those considering taking this route. It comes with a $0 annual fee and a respectable 0% intro APR for 12 months on eligible balance transfers made within the first nine months. It also has a low regular APR of 12.99%.
The downsides to balance transfer credit cards are the credit limit given and being limited to only the intro period before interest starts to accrue. For some people, spreading payments over a longer time period may be more beneficial, even if it requires paying some interest.
Second Mortgage or HELOC
If your home has appreciated in value over time or the balance has been paid down a fair amount, using your home could be a way to consolidate your debts. Taking out a second mortgage or using a home equity line of credit (HELOC) is effectively using your home as collateral in order to pay off other debts.
Since there is an underlying asset for these loans, the rate is often lower than what you would get with a personal loan, making either the monthly payments smaller or avoiding higher interest rates with other methods. The lower interest rate may give you the ability to pay down the balance more quickly. There could be additional mortgage-related expenses when taking this route, so a direct inquiry to your lender is a must. There may be tax implications as well.
— to www.forbes.com
