3 Helpful ways for consolidating credit card debt

Consolidating credit card debt is a useful technique to lower the amount that you spend towards paying down your credit card bills and simplify your finances. There are various methods of consolidating credit card debt. You can go for a 0% APR balance transfer or take out a secured or unsecured loan. There are other options like a debt management plan (DMP) or a debt settlement program.

1) Credit card debt consolidation with a secured loan

You can take out a secured loan to pay off your credit card bills by putting your home as collateral. You might be eligible for such a loan in spite of poor credit. The advantage of a secured loan is that it offers you one low-interest monthly payment. However, you should remember that you have the risk of losing your home in the event of a default. You shouldn't also stretch out the repayment term since this would raise the overall interest costs throughout the term of the loan.

2) Credit card consolidation with an unsecured loan

You can also take out an unsecured loan to pay off all the balances on your cards. The advantage here is that you don't have to provide any collateral. However, you should have excellent credit to obtain such a loan and the interest rate on these loans is usually higher than the secured loans. You can consolidate up to $25,000 through an unsecured loan. If this is not adequate, you can go for a settlement program or secured loan.

3) 0% APR balance transfer

A 0% APR balance transfer card is similar to a consolidation loan but the only difference is that there is no borrowing cost. If you can shift and pay off all your balances through one such card within the 0% introductory period (usually 12 months), then you can really save a lot of money on interest payments. However, there is a balance transfer fee that might range between 3% and 5%. A good credit score is necessary.

Some important points to remember

You can use a loan to consolidate your bills. However, you should try to lower your spending and stop acquiring new debt while you're undergoing the consolidation procedure. If achieving financial freedom is your priority, then it's essential that you become disciplined.

Making a decision to consolidate your bills can certainly lower the amount of your discretionary income that you use to pay down revolving credit. Though consolidation carries a lot of advantages, you shouldn't start recklessly charging on your cards once more since it would make your situation worse than before. Always think cautiously before going for a secured loan. If you don't want to lose your home, then a DMP or other kind of debt relief program might be more suitable for you.