Effective Ways to Consolidate Credit Card Debts

Credit cards are undoubtedly an effective tool for buying things. Not just because it offers you credit for shopping, travel, emergency, and other requirements, but because these cards offer cashback, miles, and many exciting rewards. As lucrative as it may sound, credit cards can turn out to be super expensive for you. It’s not uncommon for people to have multiple cards with varying balances, different interest rates, and unique payment schedules for each.

Getting stuck with credit card debts that come with a whopping interest and a strict repayment plan can be intimidating. If your credit card debts are piling up, don’t worry. You aren’t alone. To help you manage your debts, we’ve compiled a list of some practical consolidation tips that will surely help you pay down all your credit card debts with interest and on time. Let’s get started.

Credit Card Debt Consolidation

Debt consolidation combines multiple credit balances into a single monthly payment. Simply put, after consolidation, you don’t have to pay a specific amount to each lender with different monthly interest. Instead, you can combine all balances into a single credit card or take out a personal loan that helps you repay your credit card balances.

The biggest perk of credit card debt consolidation is the lower APR. You pay a comparatively lower interest on a single loan compared to high-interest credit cards. Additionally, it can help improve your credit score. Paying your loan on time is all you need to ensure your credit card bills are repaid as required. This helps you get on track to achieving a debt-free life.

Let’s check out the debt consolidation tips that may help:

Balance Transfer Credit Cards

If you are currently on multiple high-interest credit cards, a balance transfer might be your best bet. A balance transfer credit card comes with a promotional offer of 0% APR for 15-21 months, which makes it an exceptional deal for debtors struggling with hefty interest rates. With a balance transfer, all your money goes toward the loan repayment.

Some processors charge a one-time fee, which is generally lower (around 3-5 percent) compared to the interest you pay on high-credit card loans. Still, it’s advisable to weigh the interest you’ll incur throughout the term and the processing fee.

Aim to clear your loan repayment before the interest-free introductory period ends. After that, regular interest will be charged on repayments, which can spike quickly. You need a good or excellent credit score (greater than 670) to qualify for a balance transfer. If you are not sure about your current score, you can check CIBIL score with a PAN card on Stashfin or other trusted sources.

Get a Personal Loan

Another credit card debt consolidation option is a personal loan. You can call your bank or credit union to get a personal loan. It comes with a flexible repayment term, which is usually between 12 and 60 months. The interest rate is also quite reasonable. The major advantage is that some financial companies are willing to pay your creditors directly, so you never have to worry about spending the loan amount on anything other than the loan repayment.

Coming to the downside, not everyone qualifies for a low-interest personal loan. You may need an excellent credit score for a low-interest, flexible-term loan. Even then, the bank may impose an annual fee, which can add to the final cost of the loan.

Personal loans do not come with a 0% APR introductory period like a balance transfer, so that’s another drawback. Banks and other lenders offer personal loans with varying interest rates and repayment terms. So, shop around to find the best deal. Stash fin can be an excellent choice for people looking to consolidate their credit card debts into a personal loan. It offers a loan of up to INR 5,00,000 with simple requirements. The loan is credited shortly after your application is approved.

Get Home-Equity Loans

If you are a homeowner, you may have home equity. You can borrow against your home’s equity. It’s a highly effective way to secure a loan with significantly lower interest than credit cards and any personal loan. Home equity is calculated by subtracting your home’s current value from the mortgage amount you owe to the lender.

If you’ve repaid a significant portion of your home loan, you may have built a substantial home equity. Once you’ve borrowed a loan against your home equity, you will have a single, low-interest payment to make every month. The only downside to home equity for debt consolidation is that you are putting your home at stake. If you default on the repayment, the lender might proceed with the foreclosure.

Consider a Debt Management Plan (DMP)

Credit counseling agencies offer a debt management plan, which is a smart and effective way to repay your credit card debts. These agencies work with your creditors to help lower your interest rates. Once you’ve become part of this, all your debts from different credit cards will be consolidated into a single monthly payment, which comes at a fairly reasonable interest rate and flexible repayment term.

However, these agencies impose a fee. The good part is that the fee can be reduced or completely waived depending on your financial status and the amount you owe. The program may require you to close your credit card accounts, some or most, depending on the agency you work with. So, always double-check their guidelines before joining. For debt management, maintaining a decent CIBIL score is also important. You can now check CIBIL score with a PAN card for overall ease.

Ask Your Family or Friends

If you don’t qualify for any of the options listed above, your last resort is to call your friends or family. There must be someone willing to grant you the loan for a lower or zero interest, a flexible repayment term, and no collateral requirement. People rely on their loved ones for loan requirements because they do not impose strict eligibility requirements or charge high interest.

Plus, you can get the loan within a few days. This saves you the time of running back and forth between different banks and sending multiple applications to different lenders. There’s no formal procedure needed, although it’s recommended that you get everything in writing.

Conclusion

Consolidating credit card debt is a strategic move that can significantly improve your financial health. By taking advantage of lower interest rates, simplifying your payments, and potentially reducing your overall debt, you can regain control of your finances. Remember, the key to successful debt consolidation is discipline and commitment. By adhering to a strict repayment plan and avoiding additional debt, you can work towards a debt-free future.

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