Carrying a heavy debt load isn’t easy, and when you have debt spread across different credit cards and loans, it becomes even harder to stay on top of payments. If you are keen on making your loan repayment easier, consider debt consolidation.
The meaning of consolidating your debts is simple. Your debts are transferred to a single lender, and you make a single monthly payment to one lender. Based on creditworthiness, you might also get a lower interest rate and lower payments.
But before you merge your loans, we have to warn you that it might come with consequences so here is a simple guide to help you pay off your various loans better:
Can you transfer the balance to consolidate my credit card debt?
Credit card lenders sometimes provide low early interest rates or special deals on balance transfers, meaning you might end up paying less than you paid before transferring your balance. However, you should remember that these offers are typically for a limited time, so it is crucial:
- That you ensure that you won’t be paying more than needed once the deal expires.
- That you read the terms and conditions cautiously to ensure you fully understand the deal.
- That you evaluate the balance transfer deal for any additional fees, including the ones that apply to 0% balance transfers.
How can you refrain from further credit card debt?
Whether you have a debt consolidation loan or you are applying balance transfers to merge credit card debts, you should
- Repay the credit card debt within the stipulated period.
- Destroy the card, so you are not lured in the trap of using it again.
Avoid spending on the card as if you do keep spending, there will be the risk of taking your debt back up higher to the maximum limit and boosting up your original debt.
- Use the preliminary period to pay off the balance
If you do transfer your debts, remember the downside that once the introductory period expires, you will be stuck with the average interest rate, so there won’t be any advantage to debt consolidation. The new interest rate may be higher than the interest rate of your old cards, so be very cautious and try to pay off the debt in the introductory period.
If you have a long term plan on debt-repayment, then get your balance transferred and a credit card; otherwise the whole situation might blowback in your face.
- Look for an External Funding Source if no income is there
Taking out personal loans or loans for unemployed is suitable when you have different credit card debts clawing at your paycheck. You can take out a personal loan to consolidate debt, and use the funds from the debt consolidation loan to pay off your credit card balances. In turn, you won’t be making multiple credit card payments every month but instead one payment for the personal loan.
If you have good credit, the personal loan may come with a lower interest rate compared to the rate that credit card creditors are charging. Personal loans also offer stretchy repayment terms, so you can choose the one that suitable you’re your budget according to your paycheck and expenses. Also, some lenders send payment directly to the jobless borrowers so you won’t be tempted to use the loan money on your own for anything else.
- Debt management plan
The major pros of the debt management plan are that you get fixed monthly payments, and it might even cut your interest rate in half! But there are cons too like there are plenty of startup fees and monthly fees involved and it may take around three to five years to repay your debt.
Debt management plans cover several debts into one monthly payment at a cheaper interest rate. It is an excellent option for those struggling to pay off credit card debts, but have a low credit score so they won’t qualify for other options.
Like any other credit card debt consolidation solution, debt management plans need that a person has regular income.
You can take out loans with bad credit if your credit is not at par with agencies requiring top-notch credit for a personal loan to pay off the loan. There are plenty of agencies offering financial assistance to people who have had not so glorious fiscal past and have had troubles financially in the past. Explore all of your options before you consolidate your debt and consider low-interest options based on your creditworthiness.