If you feel stuck in this cycle, there are ways out. Here are some options to consolidate your credit card debt and pay off your balances. Also: The best balance transfer cards How it works: When you sign up, you notify the card issuer of any balances you want to transfer to them. You’ll need basic information, such as your account number, balance owed, and the mailing address of the credit card company. Upon approval, the card provider issues a check to pay off the credit card balance with your old provider. Then, you’ll make payments at 0% interest for that introductory period. If you do not pay off the balance in that time, you’ll pay interest until you pay off the debt. Pros:
You’ll gain a 0% introductory rateYou’ll save money on interest charges over the life of the debt and could pay it off quickerYou consolidate multiple payments into one
Cons:
Some issuers charge a balance transfer fee (3% to 5% of the balance transferred)You have a narrow window of opportunity to pay it off
How it works: A home equity loan allows you to borrow a lump sum. You can use this money to pay off your old credit card debt, and then you’ll pay off the home equity loan in fixed installments, similar to how auto loans work. Also: 5 ways to improve your credit score without a credit card There’s also a home equity line of credit (HELOC) you could choose. These are similar to credit cards in that you have a credit line you can borrow. You can use as much of it as needed to pay down credit cards. And as you pay that down, you have more access to your credit limit. If the ultimate goal is paying off debt, the home equity loan is a wiser choice. You borrow what you need and have fixed payments until you pay off the debt. Pros:
The interest rate can be lower than a personal loanYou have fixed monthly payments with a home equity loanA HELOC gives you the flexibility to borrow from your credit line as neededYou might qualify for a longer repayment period
Cons:
It’s a more involved process than a personal loan in that you need equity in your home (at least 15%-20%) and an appraisal doneIf you default on your loan, you could lose your home
It allows you to pay your balance down at a faster pace, since you don’t have to contend with a higher interest rate. And it makes it easier for you to pay off debt, as you only have one payment instead of multiple. Moreover, some online lenders allow you to see if you qualify with a soft pull on your credit score. It means a hard inquiry won’t appear on your credit report. And credit unions are a wise option to consider because they keep their interest rates low for their members. It’s even smarter if you have an established relationship with one. Pros:
You could qualify for lower interest ratesSome lenders send payments directly to credit card companies on your behalfYour payments are more manageable since you only have oneA fixed payment allows for easier budgeting
Cons:
Some lenders assess an origination fee to consolidate – this can equate to 3% to 5% of the debt owedYour credit score could drop if your old credit card provider closes your account
If you’re a homeowner with a lower credit score, a home equity loan might be a wiser option. You might qualify for lower interest rates than you would with a personal loan. And since it’s a secured loan, your bank might feel more comfortable approving you. Also: The best unsecured credit cards: Bad credit? No worries Meanwhile, if you have an excellent score, it opens more doors. You can explore credit cards with low introductory rates or personal lenders. Along with checking your credit, make an inventory of all the debts you want to consolidate. Gather the latest statements from each and receive payoff quotes. It allows you to see how much you need to borrow.
