Best Way to Consolidate Credit Card Debt

You signed up for your first credit card to get free pizza on a college campus. The next one was for the bonus points. Then, you signed up for another card to save on gas, followed by two more after you maxed out the first 3.

best way to consolidate credit card debt

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Nobody gets over their head in credit card debt intentionally. However, it happens to many Americans, as 56 percent of consumers have carried an unpaid balance within the past 12 months. Overall, the average household with credit card debt is nearly $16,000 in the hole.

If the above describes you, fear not. You can reduce your credit card debt burden by consolidating it. Let’s take a look at the best way to consolidate credit card debt.

First, it is important to note that there is no one option that is best for everyone. Your particular financial situation along with your goals will help pinpoint the best option for you.

Credit Card Debt Assistance

There are numerous ways to consolidate your credit card debt. These include the following:

Borrow from Your Home

If you have built up home equity, now may be the time to reap the rewards. You can borrow from your home via a home equity loan or home equity line of credit (HELOC).

With a home equity loan, you’ll receive a lump sum payment. Like most other loans, you’ll have a pre-determined period of time to pay it back. So, you could take out enough money to pay off your credit cards and concentrate on a single loan instead of multiple bills.

Meanwhile, a HELOC is more like a credit card backed by the value of your home. You can borrow just enough to cover your bills and do so over time, just as you would with a credit card. Once repaid, your limit would be replenished, as well – just as with a credit card. This would be an ideal option for those with lower amounts of debt, as a lender may not want to bother with a small home equity loan.

You can also deduct up to $100,000 in interest expenses on your tax return with either option, which increases the appeal of this type of borrowing.

Be aware that both options involve using your home as collateral. So, now may be a good time to start visiting your rich uncle in case you cannot repay the loan on time.

Unsecured Personal Loan

An unsecured personal loan is just that – a personal loan with no collateral. A bank or credit union will review your financial situation and, if approved, you’ll get a loan.

A great benefit from your perspective is that you won’t have to put up your car, house or another valuable asset as collateral. So, if you cannot repay the loan, you won’t have to ride the bus to the homeless shelter.

On the down side, the lack of collateral means you’ll typically face a higher interest rate than on other loans. Lenders do this to hedge their risks in offering such loans, as there is a higher chance they won’t be repaid.

Balance Transfer Card

If you qualify for a balance transfer card, this may be your best form of credit card debt assistance. In this regard, Citi offers several credit cards with a 0 percent APR on balance transfers for 12 to 18 months, depending on the specific card. As such, you could transfer your credit card debt to such a card and pay a chunk (or all) of it off with no additional interest.

Be aware that interest rates on such cards eventually go up to the issuer’s normal rate, so read the fine print before signing up.

Note that Citi isn’t the only company that offers balance transfer cards, but they tend to have the best deals on the market. Shop around and see if you can qualify for a worthwhile card.

Tying It All Together

If you’re not sure how to deal with credit card debt, keep the mentioned options in mind. A balance transfer card would be a great way to pay down your debt without incurring additional interest, but that’s dependent on your credit limit and how long you expect the repayment process to take. Thus, no particular option is best for everyone, so weigh your choices and consider enlisting the services of a financial professional.