Credit Card Consolidation Loans and Other Consolidation Options
Financially speaking, credit cards are a part of our lives, now, for better or for worse. The convenience of paying on credit, especially when making large purchases, is undeniable. But that convenience comes at a certain cost – in the form of exorbitant interest rate.
If you’re not careful with your credit card purchases, especially, if you are using multiple credit cards, the interest can quickly become a burden. Worse still, if used in an irresponsible manner, it can soon turn out to be a debt trap which you may find seemingly impossible to overcome.
For those of you who are feeling bogged down by the burden of several credit card balances, you might want to consolidate your debt. It could provide some much-needed relief from your financial woes and allow you the time required to figure a way out.
What is Credit Card Consolidation?
Credit card consolidation, or simply debt consolidation, is the process of borrowing money from a single external source and paying off the combined debt incurred on multiple credit card usages. So instead of worrying about multiple payments, you can concentrate on a single installment and get a much lesser interest rate compared to what credit cards offer. The lower interest rate results in a reduction of the total amount payable, and you can adjust the repayment schedule as per your convenience.
Pros and Cons of Consolidation
While credit card debt consolidation has several tangible benefits, there are a few pitfalls that you must be well aware of.
When it comes to the obvious advantages, the lower interest rate is perhaps the most significant one. Convenience comes next in line as you are no more overwhelmed by the sheer volume of credit card bills at the beginning of each month. Instead, you can put your entire focus on single loan repayment.
Your monthly payable installment amount will also reduce to a certain extent – providing you with a significant saving once everything gets settled. Last, but not the least, you can bargain your way to buy more time in clearing your debt – as you are no more bound by the ever-rising interest and penalty charges that are so common with outstanding credit cards bills.
If you take a look at possible disadvantages, what readily comes to mind is the added processing fees that you are required to pay while securing a new loan. As you are technically availing a new loan, your credit score will also take a hit. Moreover, if you unnecessarily prolong the repayment term, you might end up paying more in interest over the life-cycle of the loan. Finally, there could be possible tax implications arising from debt consolidation that you need to account for.
Should You Consolidate Your Credit Card Debt?
Now that you have a fair idea on the possible consequences, you should devise an effective way to plan your debt consolidation. While it does make a lot of sense, things may get complicated when you are in the market for arranging the required money. So it’s important to be diligent before moving ahead with the plan to consolidate your credit card debts.
The first hurdle is to decide where to borrow the money from. Should you break into your savings or retirement funds? Or going for a bank loan will be a better option?
Secondly, you will need to find out whether your current credit score will be enough to secure a new loan. The lending company may not entertain a new loan request if your credit history shows adverse signs.
Thirdly and most importantly, do you have a steady source of income to honor the repayment schedule? Any lender will give it a serious thought and approve your loan application only if they are convinced about your ability to afford the new loan.
Personal Loans for Credit Card Consolidation
A personal loan can be your safest bet for funding credit card debt. It usually has a low rate of interest, less stringent eligibility criteria and greater flexibility when it comes to repayment terms.
Nowadays most of the US-based lenders offer the convenience of online application and approval for personal loans. What’s more, a few of the lenders, such as Stilt, offer the option of a soft credit check which doesn’t count negatively towards your credit score. As a rule of thumb, a better credit score translates to more negotiation power – which can subsequently help you secure a better rate of interest.
All that is required from your end is to fill out and submit an online loan application with supporting information and documents. The lending company, after receiving your application, validates the supplied information – including your credit history and source of income. In case any additional information is required, a representative of the lending company may reach out to you.
If all goes well and you are deemed eligible, then your loan application will get approved. You can expect to be intimated about the approval/rejection decision within a couple of days. The disbursal process is initiated right away and the funds get transferred to your bank account within another 2-3 days.
Other Options for Consolidating Your Credit Card Debt
While the personal loan is the most preferred choice for consolidating credit card debts, there are a few other ways that can serve the purpose right. If you are not comfortable (or not eligible) with a new unsecured loan, then here are the other options at your disposal.
1. Work with a Credit Counselor
If you are looking for some expert advice, then credit counseling organizations can be of great help. These non-profit organizations are aimed at offering people assistance in creating effective plans to pay off their debts. Before you seek help from such a body, ensure that it is accredited by the National Foundation for Credit Counseling (NFCC).
2. Open a Balance Transfer Credit Card
Balance transfer credit cards usually offer an introductory 0% interest rate for a certain period of time. If your financial woes are likely to be short-lived, then it can be a smart choice to transfer all your credit card debts to a new credit card account. It allows you to make a decent saving on the payable interest rate.
3. Borrow against Your Home or Vehicle
If you own any asset or property, then it can be a good idea to secure a loan against such an asset. Banks are usually far more lenient in offering competitive interest rate when you borrow against your home or car. Such cash-out refinance can help you cover off all your credit card debts at a reduced overall cost as far as the interest is concerned.
4. Take a Loan from a Friend or Family Member
It can’t get any better if you have a near one who is willing to provide you financial support in your hour of crisis. That way you can bypass all those eligibility requirements and make a quick arrangement to pay off your debts at once. However, you need to proceed with caution as your personal relationship is on the line. A candid discussion about your financial plight and being honest to the pre-decided repayment terms can go a long way in alleviating any future relationship strains.
A debt consolidation loan can be of big help to borrowers who are finding themselves trapped under mounting credit card bills – but they do come with certain associated risks. Hence, it’s important to give the potential drawbacks a serious thought. Make sure to analyze whether a debt consolidation loan is the right solution for you or not.