Credit card debt consolidation serves multiple purposes. This method can alleviate multiple bills each month and combine debts into one loan or bill. And with consolidation you can pay off your debt at a much lower interest rate and lower payment. Various methods of consolidation are effective. Know your options and pick the consolidation method that's right for you.
Consolidate with Credit Card
Applying for a new credit card is one way to consolidate your credit card balances. Instead of paying on three different credit cards each month, apply for one credit card and transfer the balances of all three accounts to the new card. Known as balance transfer, this method offers a fast and effective means of consolidating credit cards. Moving your existing balances to one card simplifies your bills and if you qualify for a low-rate or zero percent interest balance transfer, you could save on monthly payments each month.
Apply for Home Equity Loan
Consumers with thousands of dollars of home equity can use it to consolidate their credit card debt. Meet with a lender and apply for either a home equity loan or home equity line of credit. These options give homeowners quick access to a lump sum or a revolving credit line and they can use the money to pay off their credit card debt. Owners make monthly payments to repay the home equity loan. These options are beneficial if the interest rate is lower than the credit card rate.
Cash-Out Refinance
Refinancing a mortgage loan (applying for financing to replace an original home loan) and borrowing cash from the home's equity is another option for consolidating credit card debt. This method works similar to a home equity loan. The main difference is that owners are refinancing their home loan, and rolling the amount borrowed from the equity into the new mortgage balance. For example, if refinancing a home with a $100,000 mortgage loan, and borrowing $15,000 from the equity, the new mortgage balance is $115,000.
Debt Consolidation Agency
Debt consolidation options are limited if you can't qualify for a new credit card or tap into your equity. Options to help individuals in this situation include working with a debt consolidation agency. Unlike the other options, debt consolidation agencies don't provide a check to pay off credit card balances. They simply take over paying accounts for those enrolled in the program and set up a payment plan that involves sending one payment to the agency each month. Agencies negotiate a cheaper interest rate and payment with creditors. Once they receive a person's monthly payment, they divide the funds and pay the individual creditors.
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