Consolidating credit card debt will make your monthly payments easier and less expensive as you get free of debt.
Credit card debt restructuring is when several credit card accounts are combined to form a single monthly payment, which hopefully has a lower interest rate than what you currently pay.
But consolidating your debt takes time and many approaches include a submission to see whether you are first accepted, which usually leads to a challenging credit inquiry that may lead to some declines in your credit scores.
To help you determine if the mix of credit cards is suitable to you, other solutions have to be considered.
1. Work with a nonprofit credit counseling organization
Credit counseling would evaluate the current financial situation and work with you to develop a plan for addressing the financial challenges. They give guidance on credit, budgeting, money management and debt management.
If you collaborate with a credit agency, the corporation must be checked before you start. See the Office of your Public Prosecutor and Consumer Protection Agency to make sure it is trustworthy.
Pros: An organization that provides credit counseling will work with your lender to create a debt management program on your behalf, which means that you pay the credit advisory company annually. The company will then use the creditors ‘ money. The financial advisor will also negotiate reduced interest rates or waive other charges for your investors.
Adverse: Many credit counselors can charge a fee for some of their services, and if you engage in a debt management plan, they will decide that you will not apply for a new credit or use your existing credit.
2. Apply for a personal loan
You can use a personal loan for debt consolidation and use the proceeds of a deposit for debt consolidation to pay off your credit card balance. Then, you pay for the personal loan instead of making multiple credit card payments every month.
Pros: If you have a good loan, you will apply for a lower personal loan interest rate than the rates paid by the issuers. Personal loans offer flexible repayment options so that you can choose the one for your spending.
In fact, certain borrowers would immediately give money to your creditors to keep you from being able to use the loan funds for something else. Many borrowers do offer the possibility of filing for prequalification, so that you can figure out what your future options are without impacting your credit scores.
Adverse: You must satisfy the eligibility requirements of the lender in order to qualify for a personal loan. You may not be eligible for a rate of interest which is equal to the present rate on your credit cards if you have had financial difficulties in the past.
Moreover, some lenders charge an origination fee that can add hundreds of dollars to the expense of your loan, which can be consumed before you even collect it.
3. Use a balance transfer credit card
A balance transfer allows you to move balances on a different card from one or more credit card accounts. Credit cards for Balance Transfer often provide a 0 percent APR on balance transfers in a certain amount of time.
Pros: When you pay the balance that you pass before the initial period ends, payment of interest charges on the exchanged amount could not be completely avoided.
Advantages: The promotional period is limited. If you do not pay the amount transferred (full and on schedule) before the admission period ends, the remaining balance raises interest at the regular rate of the card.
Some cards often charge a balance transfer fee which adds to the amount you have to pay back. Therefore, the amount that you transfer — including any fee charged — can not be above your credit level, which may not be high enough to cover all of your debt.
Please note that balances between cards issued by the same issuer may not be transferred. And it is especially important to pay on time when you opt for a balance transfer as late payments can void the promotional APR deal.
4. Ask a friend or family member for help
Depending on how much money you owe, what your overall financial photo looks like, it may be useful to ask a family friend to lend you money.
But if you opt for this approach, it is important to make sure that the loan terms and the repayment plan are clearly defined just as if you got a loan from a financial institution.
Heads-up on the following options
The below are other possible forms of credit card restructuring, but we do not recommend them because they are more complicated than the solutions we discussed earlier.
5. Cash-out auto refinance
Some lenders provide cash-out auto refinancing loans that allow you to use your vehicle equity to obtain a loan for other expenditures such as credit card debt reduction. And, if you can’t pay, you risk losing your car.
6. Home equity loan
Home equity loans allow you to borrow from the equity of your property and use the cash for almost anything else.
It can be a good option because these loans are often cheaper than credit cards and personal loans. However, if payments are defaulted, the landlord typically has the right to start a bankruptcy process and you may lose home.
7. Retirement account loan
It may be timely to use some of those contributions to pay off your debts if you are investing in an employer-sponsored retirement account such as a 401(k) or 403(b).
The lenders on the pension portfolio do not require a credit check as long as the fund has a borrowing available — some don’t — and the rate of interest is typically lower than what the mortgage or other lender would offer.
But if you can not afford the payments, the money you lent may be taxed and you may have to pay a penalty in exchange. Since the money that you borrow will not gain interest, you miss a chance to increase your pension income.