Popular Methods for Credit Card Debt Consolidation
Credit Card Balance Transfers
Credit Card Consolidation Loans
Credit card consolidation combines multiple debts into one loan with a single monthly payment, ideally at a lower interest rate than the average of previous loans. Qualifying for a lower rate on a credit card consolidation loan can result in significant savings on interest over time.
Simplifying monthly payments by consolidating multiple debts into one monthly payment can be more manageable.
Home Equity Loans or Lines of Credit
Secured by your home’s value, home equity loans and lines of credit (HELOC) offer lower interest rates than unsecured loans. Repayment terms are typically longer, with lower monthly payments.
Some home equity credit lines have interest-only payments during the initial draw period (usually 10 years). However, these attractive home equity loans carry the risk of home loss if payments are not made.
Another factor to consider is that closing costs, range from 2 to 5% of the loan amount, and annual fees for some HELOC loans are factors to consider.
Unsecured Personal Loans
Personal loans serve various purposes, including home renovations or debt consolidation. They can be secured or unsecured, with unsecured loans not backed by collateral like home equity or a vehicle.
Repayment involves regular monthly payments. When contemplating using a personal loan for credit card debt consolidation, compare the loan’s interest rate with the existing interest rates on the debts you plan to consolidate.
While personal loan rates might be relatively high, they could still be lower than your current credit card APR, especially with excellent credit. Be aware of potential fees like origination fees, late payment fees, prepayment penalty fees, and application fees.
401K Loans
Utilizing a 401k loan through your employer allows you to borrow a portion of your vested balance, either the greater of $10,000 or 50%, or $50,000, whichever is less. The interest rate is generally lower than credit cards and personal loans, and interest paid goes back into your retirement account.
Approval is simpler, with no credit check, as the loan is secured by your retirement savings. Repayment is usually required within five years, and if you leave your job, the loan becomes due in full within 60 days.
Debt Management Options
A debt management plan involves an informal agreement with lenders to pay off existing debt through one monthly payment to a credit counselor. Qualification requires being up to date on payments and owing a minimum of $1,000 in unsecured credit card debt.
A credit counselor negotiates lower interest rates and possible fee waivers. While it doesn’t involve taking out a new line of credit, existing lines may need closure as part of the program.
Why Loans to Consolidate Credit Card Debt Are So Popular
BD Nationwide provides an introduction to financial professionals that assist borrowers with credit card debt consolidation loans with high LTV second mortgages and fixed-rate refinancing to achieve lower monthly payments and facilitate debt reduction.
According to economic reports, the average household of homeowners carries between $18,000 and $25,000 in credit card debt each month.
Potential Risks with Consolidating Credit Card Debt with a Mortgage
Compare Secured and Unsecured Credit Card Debt Relief
Is it better to pay down my credit cards with my savings or pay off my credit card debt with a second mortgage?
Consolidate your loans and credit card debt now!
Bad Credit Mortgage | Bad Credit Refinance | Bad Credit Home Equity Loans | Home Equity Line with Bad Credit | Bad Credit FHA Mortgage
Linda’s Tip for credit card debt consolidation — Ask Linda?
“Wake up homeowners! Personal credit cards don’t have the same tax advantages as a debt consolidation second mortgages have for deducting mortgage interest. You will save money by consolidating credit cards in a secure loan. It is amazing what happens when you eliminate the compounding interest your credit card companies enjoy calculating each month.”