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3 ways to consolidate credit card debt

FOX News logo FOX News 8/11/2022 Nick Dauk

Credit cards can be useful financial tools. Unfortunately, they can also create financial hardship if you don’t pay off your balances on time. Americans paid an estimated $120 billion in credit card interest and fees from 2018 to 2020, averaging about $1,000 per year for each household, according to the Consumer Financial Protection Bureau (CFPB).

With 83% of adults holding at least one credit card and most averaging 3.84 credit card accounts, it’s easy to see how people accumulate debt. If you’re carrying credit card balances from month to month, these three credit card consolidation strategies may help you save money and pay down your debt sooner.

A personal loan is one way to consolidate credit card debt. Credible makes it easy to see your prequalified personal loan rates from various lenders, all in one place.

While it may sound contradictory, you can use a credit card to help pay off your credit card debt. A balance transfer credit card allows you to consolidate your existing credit card debt onto a single, new credit card.

Refinancing with a balance transfer credit card can be one of the cheapest ways to pay off credit card debt if used effectively. Many credit card companies offer incentives for opening a balance transfer credit card, such as a 0% introductory APR on balance transfers for a certain period of time. This allows you to pay down your credit card debt with a single monthly payment without accumulating more interest. 

But you typically need excellent credit to qualify for a card with a 0% APR offer, and you’ll only receive this incentive for a limited time. If you’re still carrying a balance when the promotional period ends, you’ll start accruing interest at the card’s regular rate, which can be high. You may also be subject to balance transfer fees, which typically range from 3% to 5% of each balance you transfer.

Speak to your credit card issuers about ways you can negotiate your credit card debt before taking out a new card. But be aware, paying less than you owe on credit cards or any other type of debt can adversely affect your credit.


Video: Major Credit Card Mistakes to Avoid When Times Are Tough (Buzz60)

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A debt consolidation loan is an unsecured personal loan that you can use to consolidate multiple sources of high-interest debt, like credit cards. These loans generally have a fixed interest rate, don’t require collateral, and come with fixed monthly payments. They can also help boost your credit score by lowering your credit utilization and adding to your credit mix (the different types of credit products that you have).

If you have good credit, you may be able to get a lower interest rate on a debt consolidation loan than what you were paying on your credit cards. The better your credit, the lower the rate you’ll receive. 

But you may have to pay fees when you take out a debt consolidation loan, like origination fees for processing the loan or prepayment penalties for repaying the loan ahead of schedule. 

Consolidating multiple monthly payments into a single payment can help you better manage your debt. Follow these steps to take out a debt consolidation loan

Credible makes it easy to compare personal loan rates from various lenders, and it won’t affect your credit.

You also have the option of using your home’s equity to pay off your credit card debt. You can do this in two ways: through a home equity loan or a home equity line of credit (HELOC). 

The CFPB notes that even though using your home’s equity is one way to consolidate your debt, many people aren’t able to lower their overall debt by taking on more debt unless they also lower their overall spending. 

Effectively managing your debt is the first step to staying out of debt in the future. Here are some ways to help you stay debt-free going forward:

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