3 signs you should consolidate your credit card debt

0

Since credit cards tend to have high interest rates, getting rid of credit card debt can be costly. Debt consolidation is a popular way to pay it off more efficiently.

Here are the two most common ways to consolidate credit card debt:

  • Apply for a balance transfer card. The best balance transfer cards offer an introductory 0% APR on the balances you transfer. These cards generally require a good credit score for approval.
  • Apply for a debt consolidation loan. This is a loan intended to pay off other debts. Although you can get a lower interest rate with good credit, there are debt consolidation loans for consumers in all credit score ranges.

Debt consolidation requires a complete application process, and there are usually fees for balance transfers and loans, so only do this if it helps your situation significantly. Here are the most common signs that it’s smart to consolidate your debt.

One Email a Day Could Save You Thousands

Expert tips and tricks delivered straight to your inbox that could help save you thousands of dollars. Register now for free access to our Personal Finance Boot Camp.

By submitting your email address, you consent to our sending you money advice as well as products and services which we believe may be of interest to you. You can unsubscribe anytime. Please read our privacy statement and terms and conditions.

1. You have trouble managing your credit card payments

When you have balances on multiple credit cards, managing payments can be tricky. You’re more likely to forget a due date, miss a payment, and get charged late fees. Or you might not have the money in your bank account to cover every payment.

Debt consolidation can simplify things by reducing your payments. Once you’ve consolidated your credit card debt, you only have one monthly payment, which is much easier to follow.

If your credit card payments have become too much to handle, you can also pay less per month through debt consolidation. Loans are particularly good for this. You can apply for a longer loan to get a lower monthly payment amount. Keep in mind that a longer loan means more interest costs.

2. You have a high credit score

A high credit score can help you qualify for the best financial products. To pay off debt, that means balance transfer cards with the longest 0% annual interest rate offers and debt consolidation loans with the lowest interest rates.

How high should your credit score be? While there is no set number that guarantees approval, a FICO® score of 670 is considered good. This is often enough to get a balance transfer card or a low interest loan. There are many ways to get your credit score for free if you don’t know yours yet.

With a FICO® score of 670 or higher, it makes sense to take advantage. Check out balance transfer cards or the rate shop for a loan.

3. It will take at least six months to pay off your debt

Debt consolidation is generally more beneficial with larger debts taking longer to pay off. If you pay for a year, two years, or more, a lower interest rate can save you hundreds or thousands of dollars.

It’s not as good with small debts that you could pay off in a few months. You can still get a balance transfer card and save on interest. However, these cards almost always charge a balance transfer fee of 3% to 5%. These fees can wipe out most or all of the interest savings.

Do the math to find out how long it will take to pay off your credit card debt. A credit card reimbursement calculator can help. Plug in your total balances, the interest rate and the amount you can pay per month to see the repayment time.

As a rule of thumb, consider debt consolidation if you are making payments for at least six months. If you can pay it off sooner, debt consolidation is probably not worth it.

One more thing to know about debt consolidation: it doesn’t solve credit card debt on its own. This only works if you pay as much as you can and avoid overspending on your credit cards. If you do this, consolidating your debts can save you money.


Source link

Share.

Leave A Reply