Credit Card Consolidation: How can you consolidate credit card debt?

Credit card debt has become a significant problem, especially after the Covid-19 outbreak. According to Consumerfinance.gov, consumers are paying $120 billion in interest and fees every year, and with the global economic crisis, this figure is expected to go up in the next few months. Unless consumers consolidate credit cards into an affordable monthly payment plan, it would be tough for them to pay down debts.

What is credit card consolidation?

Credit card debt consolidation is a popular credit card debt relief option that helps you combine different credit card accounts with various due dates and interest rates into one payment. When researching credit card consolidation programs, choose one that helps lower your monthly income.

When is it good to consolidate your credit cards?

Credit card consolidation is a good idea when you:

  • Can pay one bill every month
  • Want to save money with a reduced interest rate
  • Want to avoid late fees, fines, and penalties
  • Want to avoid collection calls and lawsuits
How much can we save you?
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When is it not good to consolidate credit card debt?

Ideally, you shouldn’t consolidate credit cards when you can’t:

  • Pay one bill every month
  • Live a frugal life
  • Take the advice of the credit card consolidation companies

How does our credit card debt consolidation process work?

Once you contact us:

  1. You will work with my assistant, who will take down the details of all your credit cards.
  2. I will review your file and contact your credit card companies, informing them that they cannot harass you anymore.
  3. Once they know I am representing you, your creditors will consolidate high-interest credit cards at very favorable terms.
  4. I will have you work with my assistant to make single monthly payments to the creditor.
  5. You will pay off credit card debt in six to nine months.

How can I help you get out of credit card debt?

  • Get one easy monthly payment plan for multiple credit cards.
  • Reduce annual percentage rate, waive late fees, fines, and over the limit fees.
  • Choose the best option to consolidate credit card debt and reduce collection calls.
  • Avoid lawsuits, judgments, and wage garnishments.
  • Offer a No-Questions-Asked Refund Policy for unsatisfactory results.
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What other services can you get from my team?

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Pros and cons of credit card consolidation

Pros

1. Pay off your debts sooner

Taking out a low-interest credit consolidation loan may help you pay back creditors faster. Credit cards do not have a set timeline for repaying the outstanding balance, whereas a consolidation loan has fixed monthly payments with a distinct beginning and end date.

Takeaway: If you pay off your credit card debt faster, you may pay less interest overall. Furthermore, the sooner you pay off your debt, the sooner you can start building an emergency or retirement fund.

2. Improve your financial situation

You can stop worrying about multiple due dates every month because you only have one payment when you consolidate credit card debt. Furthermore, you can determine how much to set aside since the payment amount is the same every month.

Takeaway: Best credit card consolidation options can combine two or three payments into one. This can help to simplify budgeting and reduce the likelihood of missed payments.

3. Negotiate lower interest rates

The average credit card interest rate was 18.26% in March 2022. When you use credit card debt consolidation options, you have to pay much less.

Takeaway: Top credit card debt consolidation companies can help you obtain lower interest rates than the average credit card.

4. Establish a set repayment schedule

If you use personal loans for credit card consolidation or enroll in a program, you'll know exactly how much you must pay each month and when your last payment is due. If you only pay the minimum on a high-interest credit card, it could take years to pay it off.

Takeaway: With a fixed repayment schedule, you can eliminate any unexpected fluctuations in your monthly payments.

5. Increase your credit score

Credit card consolidation can help you improve your score over time. On-time payments help you build payment history, accounting for 35% of your credit score. So paying a single monthly bill on time should improve your score.

Takeaway: This credit card debt relief option can only help to improve your FICO score when you make on-time payments.

Cons

1. It will not solve financial issues on its own

Credit card consolidation does not ensure that you will not be in debt again. If you have a habit of leading an extravagant lifestyle, you may do so again once you are debt-free.

2. There may be some initial expenses

Some credit card consolidation loans have annual fees, origination fees, closing costs, etc.

Make sure you inquire about late payment fees and prepayment penalties. Depending on your lender, these fees could range from hundreds to thousands of dollars.

Before you take out loans:

  • Do your homework.
  • Read the fine print.
  • Use a credit card debt consolidation loan calculator to understand the total costs.
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What is the average credit card debt in the U.S?

The total credit card debt in March 2022 is $1,041,912,322. (source: debt clock). The clock is ticking, and the average credit card debt per citizen increases with each passing minute. The average credit card balance is $6476 per individual.

Average credit card debt

State [Debt Amount]AgeRaceIncomeEducation
Alaska - $7089Generation X - $7236White non-Hispanic - $694090-100% income - $12,600College - $7940
District of Columbia - $6367Baby boomers - $6230Other - $632080-89% - $9780High school diploma - $4940
Connecticut - $6237Millennials - $4569Hispanic - $551060-79% - $6990No high school diploma - $3390
Hawaii - $6197Silent generation - $3821Black, non-Hispanic - $394040-59% - $4910 
Virginia - $6189Generation Z - $2312 20-39% - $4650 

Source: Federalreserve.gov

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Is a Credit Card Consolidation loan a good idea?

Yes, it is a good idea, provided you continue making the monthly payments on time to repay debts within a defined time frame. Also, search for the best credit card debt consolidation loans, compare the terms and conditions, and choose one that suits you the best. You can also look for a suitable credit card consolidation loan online.

You should go through credit card consolidation pros and cons before choosing an option to consolidate your credit cards. You will be aware of what you need to do to take full advantage of credit card consolidation and repay debts within a definite time.

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How can I get a credit card consolidation loan?

You can get a loan from various sources. Personal loans for credit card consolidation can be obtained from your friends or a credit union within one business day. You can get a debt consolidation loan from peer-to-peer lenders, banks, and financial institutions.

However, the best way to get a low-rate credit card consolidation loan is to knock on the doors of peer-to-peer lenders, as they offer competitive rates. You can also borrow a home equity loan to repay your bills since they provide the lowest interest rate. But, remember: a home equity loan is a secured debt, and you can lose your house in the event of loan default.

What to keep in mind

  1. You will only qualify for the best debt consolidation loans with a good credit score.
  2. If your credit score is below 600, you will qualify for a credit card consolidation at a higher interest rate.
  3. You should always compare personal loan rates to find the best deal.
  4. Credit card consolidation is not a good credit card relief option for seniors since it will impose a new financial burden.
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Does Credit Card Consolidation hurt your credit score?

One reason debt consolidation for credit cards is good is that it doesn’t hurt your FICO score. You’re paying the full amount at low interest with this plan. Hence, your FICO score doesn’t fall.

However, if you take out a personal loan to consolidate credit card debt, your FICO score may drop initially. Applying for a personal loan triggers a hard inquiry in your credit report, hurting your FICO score. Once you take out the loan, you’re supposed to make monthly payments, and if you can’t, then late payments are recorded on your credit report, which pulls down your FICO score.

The simplest way to use debt consolidation programs without affecting credit is to make payments on time

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How can you choose the best credit card consolidation companies?

  • Check if the credit card consolidation company has an affordable fee structure and sound industry experience.
  • Read the online credit card debt consolidation reviews.
  • Ask the company how they will combine the debt into one payment.
  • Ask them if you will get any legal advice if creditors sue you.
  • Ask them if they follow the FTC laws for eliminating credit card debts.
  • Ask various questions about credit card consolidation programs and see if they can give valid answers.
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How can I consolidate credit cards with a balance transfer credit card?

You can apply for a balance transfer card when your credit score is good. This card comes with a 0% introductory APR. If you transfer your credit card balance to it, you won’t have to pay interest during the initial period. (That's why it’s called 0% intro APR credit card.)

What to keep in mind

  1. You have to pay off the entire balance within the introductory period. If you don’t, you will pay high interest on them. So, you have to set a precise payoff date.
  2. Creditors will make a hard inquiry on your credit report so they can decide if you’re eligible for their best balance transfer card.
  3. You will get the best credit card only if you have a good credit score.
  4. You will have to pay a balance transfer fee on the total amount transferred.
  5. It is best to transfer the balance from credit cards with high-interest rates to reap the maximum benefit.
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Can I still use my credit card after debt consolidation?

Usually, when you participate in a credit card consolidation plan, creditors freeze your accounts so you can’t make further transactions and incur new debt. They are already lowering your interest rate, so you should be grateful to them.

Your goal is not to increase your debt but to reduce your dependency on credit cards with good money management tactics. So, instead of thinking about new credit cards, learn how to live within your means with a budget.

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Is it possible to do credit card debt consolidation with bad credit?

Yes. You can approach top credit card debt consolidation companies to enroll in a good consolidation program. They can provide professional help so that you repay debt and, in turn, will improve your credit score with time.

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Can you lose your house due to credit card debt?

You won’t lose your house for not making payments to your creditors. Credit cards are unsecured debts, and creditors can only impose a lien on your home after obtaining the judgment.

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How can you consolidate credit card debt on your own?

There are a couple of ways to consolidate credit cards on your own. You can take advantage of a personal loan, home equity loan, credit card consolidation loan, and a balance transfer card to do it. You can also borrow against your home equity, life insurance policy, and retirement funds for DIY credit card consolidation.

I have already discussed ways to consolidate credit cards with personal loans, consolidation loans, and balance transfer cards. Now, let's explore other ways to consolidate credit cards.

Take out a home equity loan

You have equity in your home when you have paid down your mortgage balance to the point where the appraised value of your home exceeds your outstanding loan amount.

A home equity loan or cash-out refinance allows you to borrow against your home equity. Because your home secures the loan, it typically has a low-interest rate and high borrowing limit. Lenders check your credit history to determine your eligibility and the interest rate you will pay.

You can eliminate credit card debt with the proceeds from a home equity loan or cash-out refinance. However, these loans may have high closing costs, reducing your savings.

While it may seem appealing, turning your unsecured debt into a secured loan is not good. You can lose your home to foreclosure if you fall behind on payments. Furthermore, if the value of your home drops, you may find yourself "underwater," owing more money than the home is worth.

Borrow against your life insurance policy

If you have a cash-value life insurance policy, you can use it to pay off your debt. There are several methods for obtaining the cash value of your policy.

First, you can borrow against the cash value of your policy. Rates are usually low, and you don't need to make monthly payments. Any outstanding debts at the time of your death will be deducted from the death benefit. Instead of a loan, you can withdraw a portion of the funds without repaying them. You must have enough cash value to cover the loan plus current policy charges.

You could also cash out your life insurance policy, terminating it in exchange for the net cash surrender value. This is a bad idea because you forfeit the death benefit for your survivors and will almost certainly owe taxes on the cash-out amount.

Borrow from your retirement savings accounts

You can liquidate your retirement funds to pay off debts. But there are a few restrictions.

  • If you don't repay a 401(k) loan within five years, you'll face early withdrawal and tax penalties.
  • If you quit your job, you must repay the loan balance within 60 days or face penalties for early withdrawal.
  • You can borrow only up to your 401(k)'s value, and your loan can't exceed $50,000.

Keep in mind that this is your retirement fund. You will lose the money if you do not repay it. Plus, you lose a substantial amount accumulated through compound interest.

To summarise, don't get the impression that borrowing from your retirement account is a good idea. It isn't.

Opt for cash out auto refinance

A cash-out auto refinance replaces your current auto loan with a larger one based on the value of your vehicle. When you apply with a bank, you will be given a new loan to help you consolidate your debts.

However, because cars depreciate over time, a cash-out auto refinance may result in negative equity in your vehicle. This could be an issue if you want to sell the vehicle or get into an accident.

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What are the other ways to reduce credit card debt without consolidation?

Credit card debt settlement:

Debt negotiators ask you to save a particular amount in an escrow account (usually known as a trust account) every month to accumulate enough money for settling credit card debt. Once you have saved a specific amount, they will immediately start the credit card settlement process. They will ask your creditors to lower your payoff amount for a lump sum settlement. They will call creditors and negotiate until they agree to reduce your outstanding balance and waive late fees.

Once they decide, debt negotiators will ask you to pay off the amount agreed upon and complete the credit card settlement process.

Debt management plan:

Nonprofit credit counseling agencies usually offer this credit card debt relief option to individuals who can’t manage credit cards with simple money management techniques. Here you get a smart budget plan from the counselors who negotiate with your creditors for a lower interest rate on your credit cards and a brilliant repayment plan.

Once they convince creditors to reduce interest rates, you can start paying off credit cards.

Bankruptcy:

This is the best way to pay off credit card debt. You can file Chapter 7 or Chapter 13 bankruptcy to pay back your creditors, depending on your financial situation. The U.S. trustee negotiates with your creditors, sells your non-exempt assets within 3-4 months, and disburses payments among them in Chapter 7. In Chapter 13 bankruptcy, the scenario is entirely different.

Here the bankruptcy trustee gives you the option of paying off credit cards for 3-5 years through a court-approved plan.

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