Your debt is mounting and your interest rates aren’t getting any lower, less and less money each month is going into your pocket and more and more of it is put towards debt repayment. Sound familiar? If you find yourself in this situation, a smart and easy way to get rid of debt is to consolidate debt into one payment.
There are a few ways to consolidate your credit cards, but before moving forward, you must first assess your current situation. Make a list of all of your current credit cards and determine the interest rate and balance you have on each one. This will give you a better understanding of which strategy to take to consolidate credit cards into one. The next step is to choose a plan that works best for your financial situation.
Take out a Debt Consolidation Loan
The most obvious way to pay off credit card debt with one payment is credit card loan consolidation. These are easy to apply for at your bank or loan institute. It will make paying off your debt easier to manage and will have a lower total interest than compared to your multiple credit cards.
Take out a Personal Loan
This is the best option if you do not own a home or want to avoid using your home equity as collateral in order to consolidate your credit cards. A personal loan can be obtained through a lender; however make sure that the interest rate is lower than that of your credit card. The actual interest rate will most likely be higher than a loan that uses your home equity; there are also more options available if you are willing to use your home as collateral.
Take Out a Home Equity Loan
Taking out a Home Equity Loan (HEL) allows you to borrow against the value of your home. This sounds tricky but actually makes a lot of financial sense depending on your debt situation. Using an HEL can cut your monthly interest to a third of what it was before consolidation. The interest rate on a Home Equity Loan is usually higher than the interest on a first mortgage; however it is also usually much lower than that of a credit card. With an HEL, instead of making multiple payments to your credit card companies, you make one simple payment towards your Home Equity Loan each month. It is important to remember though, that your HEL must be repaid upon the sale of your home. Also, your HEL will be meshed with your home equity and will not be available to you if you sell your home.
Another way to learn how to consolidate credit cards is to use your home equity for cash-out refinancing. This basically means getting your home equity in hand by refinancing your mortgage to one with a higher principle. This seems scary but in most cases, using cash-out refinancing does not affect the mortgage payment at all. However, if it does, your monthly debt repayment will still be less since you consolidated your credit cards into your mortgage. This will ultimately help you to pay less interest on your overall debt. It is important to know though, that in the worst case scenario, you may lose your home by default since the loan is secured solely by your home.
Once you’ve chosen a consolidation plan, stick to it and you will clear your debt out in no time. Now that you know how to get yourself out of financial trouble, avoid piling yourself under debt in the future by closing your credit accounts and cutting up your high interest credit cards. It is important to keep at least one for emergency purposes, but there is no reason to have multiple in hand.