If credit card debt overwhelms you or are committed to multiple monthly debt payments, it may help to consider looking into debt consolidation. It is a financial strategy that involves merging all your debts into one loan, which allows you to make single monthly payments.
Besides streamlining your finances, debt consolidation reduces the interest rate and helps you get out of debt faster. However, it does not address the underlying financial challenges and for this reason, you should have a better understanding of what debt consolidation entails, including its pros and cons and the different forms available.
Here’s what you need to know about consolidating credit card debt.
Requirements for credit card debt consolidation
There are debt consolidation qualifications you need to meet before you can lower your credit card debt. Regardless of the consolidation form you opt for, you need to make monthly payments. Below are the major areas your lenders or creditors look into before issuing a debt consolidation loan.
- Source of income. Proof that you have a steady source of income is a prerequisite for creditors to trust you with yet another loan. It is the most important aspect in the qualifications for consolidation. Your lenders need to establish that you have the financial capacity to meet the loan terms.
- Credit history. A report tracking your previous debt payments determines whether you will qualify for a consolidation loan. A bad credit score may regard you as credit-unworthy. You can still qualify for a loan if you have a bad score. However, the consolidation loan will have very high interest charges, making it a bad option. You can learn more about this at https://www.bills.com
- Equity. Depending on how large your loan is, creditors look for collateral such as home equity as part of the qualifications.
Forms of Bill consolidation
You still have other decisions to make after choosing bill consolidation, including the avenues to consolidate your debt. For you to make an informed decision, it is wise to research about other options such as home equity, credit card balance transfer and personal loan. Ensure the selected method fits your budget and designated time frame to settle the debts. Consider other factors, such as your debt-to-income ratio and credit score, when choosing the avenue to consolidate your loan. Here is an inside look into each option.
Credit cards balance transfer
Balance transfer credit cards may be ideal if you have smaller debts. It is an alluring offer because of its low introductory rates. For this method, you transfer whatever is left in your cards to a new card with zero interest rate for a year or more. However, a transfer fee of 3%-5% will be added to your balance. Note that this offer is not available to everyone, especially those with a bad credit score of below 670. Failure to complete the balance before by the time the promotional period ends results in a fine of standard interest rates. Credit cards balance transfer may not be right for you if you have large amounts of debt.
Debt management
Unlike other forms of consolidation, debt management loan application is not a prerequisite and therefore one does not require you to have a good credit score. For this method, a non-profit credit counselor reviews your finances and formulates a debt management plan for you. The plan can help lower your interest, reduce monthly payment and clear all your debts. The professional negotiates with your creditors over waived penalties and reduced interest rates as you direct payment to your credit counselor, who then distributes the money to your lenders. Over time, the debt will be eliminated, and you will have learnt a better way to manage your finances.
Personal loan
It is a form of consolidation that you could get from a bank, friends or relative. Unlike secured loans, it is not tied to collateral and gives you the best rates. You may have the best experience with personal loans if you have a good credit score. The terms and conditions on a personal loan are usually reasonable, making it a good choice as long as you make timely payments.
Working with a professional may help you choose the right consolidation form based on your financial situation. Plenty of research is also worthwhile for you to understand what you need to know about consolidating credit card debt.
