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How can I safely consolidate my credit card debt?
Consolidating credit card debt depends on your situation. If you are thinking about debt consolidation, you might want to first consult a non-profit credit counselor.
Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments.
Here’s what you need to know if you are considering these options for consolidation:
Transferring different debt balances to one credit card account
Many credit card companies offer zero-percent or low-interest balance transfers to allow you to consolidate your debt on one account. This will allow you to make one payment and sometimes will result in lower payments.
Taking out a debt consolidation loan
Many banks, credit unions, and installment loan lenders offer these loans which collect all of your debts into one loan payment. This simplifies how many payments you have to make to different creditors. These offers also may include lower interest rates than you are currently paying. However, if you consolidate your debts and then incur new debts on top of the consolidation loan, you may end up farther in debt than before.
Taking out a home equity loan
Using a home equity loan to consolidate credit card debt is risky. Although you may be able to get credit at lower interest if you take out a loan against the equity (wealth) of your home, doing so decreases the net worth of your home and could put your home at risk.
Things to consider
If you want to consolidate your debt, there are a few things you should think about:
Taking on more debt to pay off debt may just be kicking the can down the road. Most people don’t succeed in paying off their debt by taking on more debt.
The loans you take out to consolidate your debt may end up costing you more in costs, fees, and rising interest rates than if you had just paid your previous debt payments.
If problems with debt have affected your credit score, you probably won’t be able to get the low interest rates on a balance transfer that would make consolidation worth it.
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