Credit Consolidation: A Helpful Guide
Credit card debt can be overwhelming. Between high interest rates, multiple due dates, and constantly growing balances, it can feel impossible to get ahead. That’s where credit consolidation comes in.At Delancey Street, we understand how stressful debt can be. We’re here to help you take control of your finances with credit consolidation. Consolidating your debt can simplify repayment, lower your interest rate, and help you pay off what you owe more quickly.
What Is Credit Card Consolidation?
Credit consolidation involves taking out a new loan to pay off your existing credit card balances. This loan repays your creditors and gives you just one monthly payment to manage going forward.Consolidation can take different forms:
- Personal loans – An unsecured loan from a bank, credit union or online lender. Rates vary based on your credit.
- Balance transfer cards – Transfer your balances to a new card with a 0% intro APR for 12-21 months. Requires good credit.
- Home equity loan – Borrow against home equity. Offers low rates but risks your home if not repaid.
- 401(k) loan – Borrow from your retirement savings. Inadvisable except as a last resort.
The best option depends on your credit score, income, and current debt load. We’ll explore the pros and cons of each later in this guide.
Benefits of Credit Card Consolidation
Consolidating your credit card debt offers a few potential benefits:Lower interest rate – If you qualify for a lower rate on the new loan, you’ll save money on interest over time. This allows you to pay off your debt faster.Single payment – One monthly bill is easier to manage than multiple credit card payments. No more worrying about different due dates.Fixed payment – Installment loans have fixed payments. This provides stability compared to variable credit card payments.Improved credit – Responsible use of a consolidation loan shows lenders you can manage debt well. This can boost your credit over time.Motivation – Seeing an end date for repayment can give you extra motivation to pay off debt for good.
Is Credit Card Consolidation Right for You?
Before pursuing credit card consolidation, make sure it aligns with your financial situation and goals:
- You have good credit – a score of 690 or higher. This helps you qualify for the best rates on a consolidation loan or balance transfer card.
- Your monthly debt payments are less than 50% of your income. Otherwise, the new loan payment may be unaffordable.
- You can change your spending habits going forward. Consolidation only works long-term if you avoid racking up new credit card balances.
- You can repay the loan in 1-5 years. Don’t extend repayment longer than necessary.
If you meet these criteria, credit consolidation could be a smart move. Use our online application to see what rates and terms you may qualify for.
Know the Risks
While consolidation offers benefits, it also comes with some risks to be aware of:
- Your credit score may drop temporarily when you apply for the new loan. Too many applications in a short time can also hurt your score.
- If you don’t curb spending, you could end up deeper in debt with another monthly payment added to your expenses.
- Teaser rates on balance transfer cards rise sharply after the intro period. Factor the post-promo APR into your payoff plan.
- If you use home equity and can’t repay, you risk foreclosure and losing your home.
- 401(k) loans put your retirement savings at risk if you lose your job or can’t repay the loan.
Going into credit consolidation with realistic expectations helps avoid pitfalls. Weigh the pros and cons carefully for your situation.
Tips for Managing Credit Consolidation
Once you’ve chosen credit consolidation, a few tips can help you manage the process successfully:
- Make payments on time every month. Set up autopay through your lender to avoid missed payments and late fees.
- Pay more than the minimum when possible. This shortens the repayment period and saves on interest.
- Avoid charging to your paid-off credit cards. Put them away if needed to break the habit while repaying your consolidation loan.
- Review your budget periodically and trim expenses where possible. Extra funds can go toward your consolidation loan balance.
- Track your credit score. Responsible use of your consolidation loan can help improve your credit over time.
- Communicate with your lender if you face financial hardship. They may offer options to avoid defaulting on the loan.
Compare Your Credit Card Consolidation Options
Now that you understand the basics of credit consolidation, let’s compare some of the most common methods more closely:
An unsecured personal loan allows you to consolidate credit card debt and repay it over 2-7 years.Pros:
- Fixed interest rates and payments. Your monthly bill stays the same.
- Online lenders offer loans even for fair/poor credit.
- Minimum credit scores around 600. Those with poor credit pay higher rates.
- Origination fees range from 1-10% on some loans.
Personal loans offer predictable repayment terms at competitive rates. Compare options from banks, credit unions and online lenders to find your best offer.
Balance Transfer Cards
Transfer your balances to a card offering 0% interest for 12-21 months.Pros:
- Pay no interest on debt during the intro 0% APR period.
- Deferred interest – if you don’t repay in full, interest accrues from day one.
- Balance transfer fees range from 3-5% of the amount transferred.
Balance transfer cards allow you to make headway on debt without accumulating more interest. Just be sure you can pay off the full balance before regular APRs kick in.
Home Equity Loan
Borrow against the equity in your home to pay off credit card debt.Pros:
- Potential for lower interest rates compared to other options.
- Closing costs and fees range from 2-5% of the loan amount.
- Risk foreclosure if you default on the loan.
Home equity loans offer low rates but aren’t right for everyone. Make sure you can afford the payments before putting your home at risk.
Find the Right Credit Card Consolidation Loan
The best credit consolidation solution depends on your financial situation. With Delancey Street’s online application, you can see personalized rates and terms from multiple lenders to find the right loan for you.Our simple application only takes a few minutes. We’ll match you with lenders that offer competitive rates for your credit profile – even if your score isn’t perfect.Here are a few things we consider when finding your best match:
- Your credit score and history
- Your income and current debt-to-income ratio
- Loan amount you need to consolidate your balances
- Whether you have collateral, like a home equity loan
After submitting the application, you’ll see real pre-qualified rates and terms. This doesn’t affect your credit score. You can compare offers side-by-side and choose the loan with the lowest APR and most affordable monthly payment.We want to help you find credit consolidation solutions that set you up for financial success. Our team is here to answer any questions and guide you through the process.Take control of your credit card debt today. Our online application only takes minutes, and there’s no obligation. See your options for credit consolidation loans now!