3 Ways to Consolidate Credit Card Debt
Take control of your finances and consolidate credit card debt with Fifth Third Bank. Here are three ways you can manage finances and reduce debt today.
Like most, you have goals for things you want in life, whether it’s a wedding, a dream trip, a college education for your child or an enriching retirement. However, credit card debt is a real problem and threat that can throw a wrench in all of those goals. The good news, however, is that it doesn’t have to be that way.
There are a few options for consolidating credit card debt that can help you get a handle on multiple bills with high-interest rates, payments and due dates. These credit card consolidation options can help make life easier and put you on a path toward seizing your dreams.
1. Get a 0% Introductory Card
Imagine getting a break from paying interest on your debt, and getting rid of that debt faster. That’s what you can do by getting a credit card with a 0% annual percentage rate, or APR. Credit card companies frequently offer promotions for these interest-free periods.
You can start by simply apply for one. If you have good credit and get approved, you can do what’s called a balance transfer—move the high-interest balances from your existing cards onto the 0% APR card.
Shop for a card without an annual fee or a balance transfer fee, a percentage of each balance, which could be costly if you are consolidating large balances. Then, breathe a sigh of relief because those cards are now recognized as being paid off, the burden of interest payments is lifted and you make just one monthly payment.
It’s crucial to remember, however, that your interest-free status is only for that introductory period. Leverage that time to aim for your goal. If possible, you pay off the debt before the introductory period ends, when a high-interest rate kicks in. Also, be sure to make payments on time, or you could forfeit your interest-free status.
2. Take Out a Personal Loan
This strategy aims to secure a loan with a lower APR on your debt, which can help you to pay it off faster. If you have good credit, with a score of around 700, look to a bank for consolidating your debt into a loan with a lower interest rate.
It’s important with this approach to have a plan to pay off that consolidated debt, which should be a moderate amount that you could pay off in about five years.
Having a plan is integral because you’ll likely have to commit to making a set payment amount monthly. You won’t have the option to pay only a portion of what you owe each month, as with a credit card.
You’ll also have to be sure you can restrain yourself from acquiring more debt on your credit cards while you’re paying off the personal loan. If not, you’ll just be digging deeper into debt and moving farther away from your goals and financial health.
3. Use a Home Equity Line of Credit
A home can comfort you in many ways, and helping you to consolidate and pay off high-interest debt is one of them. A home equity line of credit, or HELOC, typically offer interest rates much lower than credit cards and unsecured personal loans.
The amount you can borrow is related to how much equity you have in your home, so you may qualify even if your credit isn’t good. While that may affect your interest rate, payments may still be lower because you’ll have more time to repay this debt.
Most HELOCs require interest-only payments for a set draw period, such as 10 years. Throughout that draw period, you are only required to pay interest monthly on the amount you have borrowed.
After the draw period, your monthly payments will include interest and principal. You could opt to pay more than the minimum due during the draw period to start reducing your overall debt. It's an open line of credit, which means you can borrow what you need when you need it—your monthly payments are based on that outstanding balance.
Since the loans are secured by your house, you’re likely to get a lower rate than what you would find on a personal loan or balance transfer credit card. However, you must keep in mind that you can also lose your home if you don’t keep up with payments.
Seeing which one of these tactics best suits you will quickly get you on your way to leaving credit card debt behind. A sound plan will get you to financial freedom—the key to enjoying life.