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Credit Card Debt Consolidation Options to Consider

It’s safe to say using credit is very common in the U.S. A majority of Americans — more than six in 10 — have at least one credit card. Moreover, many people have multiple cards, with the “average” person carrying four, according to The Ascent.

While using credit isn’t inherently dangerous, carrying a balance can become very expensive over time due to the compounding of high annual percentage rates (APR). This means any money not paid off by the end of the balance cycle tends to grow in a — leaving many cardholders struggling to put a dent in their debt. It can get to a point where it would require many years of making regular payments to eliminate each balance.

This is why some cardholders decide to try one or more forms of credit card debt consolidation. The broad goal of consolidation is to help make it simpler and less expensive to tackle credit card balances.

Here are four consolidation options to consider.

Option #1: Balance Transfer Credit Card

Is high interest making it much harder to get a handle on your balance? Transferring one or more balances to a new card with an introductory offer of zero-percent APR may help. This will provide a window during which you can work down your balances without accruing new interest, whether it’s six months, a year or longer.

Always be sure to carefully read the terms of the new card before proceeding. Factor in the balance transfer fee — usually between three and five percent — to determine if you’ll really save money. Treat the card like a consolidation tool rather than a regular credit card, as you’ll only be earning that special interest rate on the balance transfer, not new purchases. You should also be careful to ensure you can pay off the transferred amount before the introductory offer expires and the regular interest rate kicks in.

Option #2: Personal Loan

Among the beneficial debt consolidation tips from the debt services firm bills.com isthe idea of taking out a personal loan with a lower interest rate than your credit card debt. Use the loan funds to pay off your credit cards all at once, then repay the loan via fixed installments.

Whether a personal loan is an advantageous move for you depends on your credit score, as lenders will offer you an interest rate based on your credit worthiness. It’s also important to calculate how much you’ll pay in interest over the entire life of the loan, then compare this figure with how much you’re already paying in credit card interest.

Option #3: Home Equity Line of Credit

Homeowners with equity in their property may be able to refinance their mortgages for a larger amount and take out the difference in cash to pay down credit cards.

While this approach may help you pay off credit card debt less expensively, thanks to favorable interest rates, it does mean you’ll be making payments on your mortgage longer. Plus, the risk of getting your home involved means you could lose this asset if you’re unable to keep up with payments.

Option #4: Debt Management Plan

Debt management plans (DMPs) require working through a credit counseling agency. Instead of paying your creditors directly, you’ll make a monthly lump sum payment to said agency, which will then distribute those funds accordingly. This can make the repayment process simpler on your end — provided you trust the agency and double-check that your payments have gone through each month. This service generally costs a startup fee plus a monthly maintenance fee.

Creditors may agree to certain provisions for DMP enrollees making consistent payments, like reduced interest and/or waived fees.

Hoping to consolidate your credit card payment to make it more convenient and affordable to pay off? Consider all your options, like the four listed above, before making a move.

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