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Credit card debt consolidation allows you to regain control over out of control debt. When you spend too much on credit and reach a point where your bills start to exceed what you can afford to pay each month, debt consolidation allows you to get back on track. You can avoid damaging your credit by missing payments, as well as more severe outcomes like bankruptcy and foreclosure. So how do you consolidate debt on your own?
The first option you have for debt consolidation is a credit card balance transfer. This is where you take existing balances from high interest credit cards and transfer the balances to a new card with a much lower interest rate. With a lower interest rate and only one payment per month, you pay less in total than you did on all of the debts separately. In addition, since the interest on the debt doesn’t build as fast, you can often get out of debt faster even though you pay less each month.
Keep in mind if you wish to use this strategy, you need to find a credit card with the lowest interest rate possible for balance transfers. Make sure to look specifically for the balance transfer APR, since this will usually be different from the standard APR for purchases. If you go online, you can even search for balance transfer credit cards that focus on offering a competitive edge on balance transfers. If you have excellent credit, you can even find cards with an introductory 0% APR on balance transfers. This means for a limited period of time, every payment you make goes directly to reducing the debt instead of covering accrued interest.
Another option for do-it-yourself debt consolidation is to use an unsecured debt consolidation loan. You take out a personal unsecured loan with a bank, credit union or other financial institution. Then you use the money from the loan to pay off your credit card balances. With zero balances on your credit cards, the only unsecured debt you have left to pay is the loan. If you have excellent credit, the debt will have a much lower interest rate and better payment schedule as well.
There is also a secured debt consolidation loan, typically referred to as a home equity loan. This is where you borrow against the equity in your home to pay off your credit card debts. Financial experts warn consumers against using this option, because you are effectively trading off unsecured debt for debt that’s secured using your home as collateral. As much as creditors may threaten, they cannot actually take your home to repay your debts without a court order, such as a bankruptcy decree. However, if you fail to pay the lender that extended you the home equity loan, they are within their right to take your home without a court order. Even if you have the money now, one emergency or change in your income could put your home at risk.
So while you may be able to get a better interest rate with weaker credit scores in a home equity loan, the risk isn’t worth it. If you have less than perfect credit or even downright bad credit, you can still consolidate your debt with the right assistance. Contact a nonprofit credit counseling to speak with a certified credit counselor about consolidating your debt through a debt management program.