If you are struggling to make your payments on multiple credit cards, you may find some relief by consolidating your cards.
This method is not absolutely foolproof. You have to adopt wise financial practices and stop racking up credit card debt to make it work.
It can help you make major progress on your debt by lowering your monthly payment and interest rate.
1. 0% APR credit cards
One of the best ways to consolidate credit cards is to apply for a 0% APR credit card and transfer all of your balances on high-interest cards to this new one.
Note that no credit cards have 0% APR forever. It is always an introductory offer. Most of these offers are for one year, but some are as little as six months and some are as much as 18 months.
Note that the 0% APR rate is also only good if you pay your bill on time. This means you have to pay down your balance as quickly as possible and on time every month in order for it to benefit you.
How does this work? That window of 0% APR keeps your debt from accumulating any additional interest, so all of your payments go directly to your debt.
None of your payments are wasted on interest, allowing you to pay down the balance more quickly and keep it from growing due to high interest.
2. Other ways to consolidate debt
Moving your credit card debt to a no-interest or low-interest card is usually the least risky and easiest option for most consumers. However, there are several other debt consolidation options available for those who want to avoid getting a new credit card.
One common way to do this is to get a home equity loan, which allows you to borrow against your house at a lower interest rate. This is effective but extremely risky.
According to U.S. News and World Report, “Make sure you still have at least 20 percent equity in your home by the time you take out your line of credit or second mortgage. If you default on the loan, you’re at risk of foreclosure — just like if you defaulted on your original mortgage.”
Another common method is taking out a debt consolidation loan. This is ideal if you are not able to qualify for a 0% APR credit card and do not own a house or do not want to borrow against it.
Look for the lowest interest rate possible by checking out our selection of low APR credit cards.
3. Debt consolidation services
There are companies that will consolidate your debt for you and set up a repayment plan. If you feel overwhelmed and insecure about this process, you may want to hire one of these companies to help you get through it.
While they can be helpful, do not use these companies if you do not have to, as you can usually do all of the same things yourself. Some of them charge expensive fees that may make negate the positive effects of consolidation.
A word of caution:
Debt consolidation can lower your monthly payment, but it can also cause you to take longer to pay off your debt.
While some people may not be bothered by this, it is worth knowing in case you have a specific timeframe in mind for when you want to repay your debt.
Behavior makes the difference
You can make the best consolidation plan in the world, but it will still do you no good in the end if you do not change your behavior of accumulating debt.
By consolidating, you may be exposing yourself to additional risk, especially if you choose to borrow against your house.
It is key to live on a budget and keep your debt burden low so you can effectively pay off your newly-consolidated debt — and then stay out of debt.
Looking for another option? Consider a balance transfer.
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