How to Combine Your Credit Card Debt the Right Way
Making credit card payments to many different companies each month can be a mentally taxing job. Plus, some of the credit cards might have annual fees or high interest rates that are increasing your cost to carry the debt. Simplify your finances by combining your credit card debt into fewer accounts. The two main ways you can do this are with credit card balance transfers or with a debt consolidation loan. Balance transfers work well when you have a small amount of debt, and debt consolidation loans are best when you have good credit and a stable income.
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Instructions
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Balance Transfer
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Research credit card offers online or look through pre-approved offers you receive in the mail. Select a card that advertises zero percent interest on balance transfers for the longest possible period, ideally at least one year. Also look for a card with the lowest balance transfer fees.
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2
Apply for the credit card. When you get the card, read the fine print to ensure that you received a card with zero percent interest on balance transfers.
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3
Fill out the balance transfer form you receive with the credit card or, if you did not get one, call or go online to initiate the transfer. Transfer all of your balances if possible, but if your credit line is not large enough, just transfer the balances from the cards with the highest interest rates.
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Leave the new credit card and all of your old credit cards at home and do not use them to make any purchases. Your payments will be most effective if you are not adding to your debt.
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5
Pay the bill on your new credit card on time every month. If you do not, the issuer can increase the interest rate.
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6
Make extra payments beyond the minimum if at all possible. Find money in your budget by eating out less frequently and buying fewer luxury items. Because you are not paying any interest, this is the most effective time to reduce your credit card balance.
Consolidation Loan
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Add up the current balances on all of your credit cards to find out the amount of debt you need to consolidate.
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Go to your local bank or credit union and ask about debt consolidation loans. If you own a home, one option is a home equity loan, which has a low interest rate because the lender places a lien on your home as security. However, this can be dangerous because the lender can foreclose on your home if you do not make payments as scheduled.
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Select the debt consolidation loan with the lowest interest rate possible.
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Select a repayment term that has affordable monthly payments for you. Calculate monthly payments by entering the loan amount, interest rate and proposed repayment term into an online loan calculator. A longer repayment term has lower monthly payments, but a shorter repayment term has less overall interest.
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Open the loan that you chose, and use the loan money to pay off all of your credit card bills.
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Stop using your credit cards and make payments on the loan every month until it is fully paid off. If you have extra money in your budget, you can make additional principal payments to pay off the loan sooner.
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Tips & Warnings
If you itemize your tax deductions, any interest you pay on a home equity loan is likely to be tax-deductible. This can increase the savings for consolidating this way.
If empty credit cards tempt you to overspend, you can close the accounts after you transfer balances off the cards.
Closing credit card accounts after a balance transfer can hurt your credit score. This is because the ratio that compares the sum of your balances to the sum of your credit limits will be higher after you close the cards that have no balances and available credit lines.
