Ways to consolidate credit card debt with loans and other aspects

Ailsa Adam October 3, 2023

If you have several credit cards with different providers, you may consider the best ways to manage them. Options like debt consolidation loans, balance transfers, credit cards and more.

The latter one helps you to move all your debts to a low-interest credit card. Eventually, it reduces the overall liabilities to pay. Alternatively, with a debt consolidation loan, you take a loan with a lender to pay all your creditors. Apart from helping you clear debt, it helps eliminate the hassle of dealing with debts individually.

Choosing the right option to pay your credit card dues depends on your circumstances. Some individuals may find hiring another firm to deal with the debt, while others prefer to do so individually. Whatever option, always check the interest rates and APR. Options with low APR and costs is the perfect one for you.

Let’s analyse the options to consolidate your credit card debt easily. However, before that, let’s consider the most important aspect.

When should you consolidate credit card debt?

Debt consolidation may not be a perfect thing for everyone. Thus, you must know the right time to consolidate your credit cards. It would help you keep your financial and credit score in good shape.

Let’s analyse the best times to consolidate the credit card debt:

  • You find terms that ultimately leave you paying less in the long run
  • Your monthly payments are affordable
  • You pay lower interest charges on the loan than overall credit card interest costs
  • The repayment period is fairly long ( lengthy terms imply more interest costs)
  • You want to boost your credit rating for a big lifestyle goal
  • You want to save some money
  • Manage debts better

How to consolidate the credit card debt the best way?

Credit cards are one of the heaviest debts on your credit report. Individuals generally prefer credit cards to benefit from the rewards, discounts and interest-free periods. However, non-repayment exceeds the liability many folds.

It becomes difficult for individuals with average income to meet the payments. Eventually, it leads to a credit card default that invites a CCJ from the provider. Under this, you must pay the dues within a specific time that the court provides. All these events, especially a CCJ, impact the credit score drastically.

Thus, it is critical to dominate the credit card payments by prioritising it. You must pay the high-interest debt first while optimising the credit history.  And credit card makes it to the list. Here are some ways to consolidate your credit card debt:

1)  Debt consolidation loans for poor credit

As mentioned above, pending payments or credit card defaults impact the credit score severely. If you miss a payment, the provider charges a penalty with additional interest on the card. It is the reason it gets difficult for one to pay the dues quickly. Eventually, worse may follow. For example, missing 2 or more payments traps you, and you find it hard to get over it.

Thus, financial instruments like bad credit debt consolidation loans may help. It is for individuals with a bad credit history looking to finance credit card dues. Individuals with regular income and improved financial behaviour can qualify. The loan helps you pay off all debts with a single payment to the lender. It reduces overall interest costs, saves money and boosts your credit score.

It changes your credit utilisation ratio drastically. It happens because lenders do not consider credit utilisation in an instalment loan. It implies the loan reduces the utilisation rate from 70% to 0% instantly. In this way, it helps your credit score.

  • Personal loans

Personal loans are one of the best ways to bring your debt ratio down.  It is generally an unsecured loan that requires no collateral to qualify. It becomes easier for individuals with a low credit history to manage debts here. However, the interest rates stay competitive on these loans rather than on secured ones. 

Debt consolidation loan is also one of the personal loans. However, not everyone makes it through the approval. It is especially true when you lack a stellar credit history or income. Debt consolidation may prove more affordable than personal loans. However, it lacks the flexibility that personal loans come with. Lenders offer the freedom to individuals on the repayment terms. It implies one can choose the best loan repayment terms according to the capability.

Furthermore, if you have only a minimal credit card debt, say £10,000, opting for debt consolidation’s complicated qualifying process is not worth it.  Instead, grab a 10000-pound loan with fixed interest and affordable terms. You can use personal loans for anything, and the easy repayment structure and flexibility to revise it make it preferable. If you want a lower number than that, you can do so with a £5000 loan, too.

3)  Retirement plan loans

Here, you borrow your savings from the lender. However, not every retirement plan allows it, but you can do so with:

  • 401 (k) plan
  • 403 (b) plan
  • 457 (b) deferred compensation plans

Profit sharing plans

Generally, these loans have low interest rates. Moreover, you do not have to go through a detailed credit check to access these loans. 

However, consider certain aspects before tapping these loans:

If you cannot pay the loan on the due date, you may be entitled to a 10% penalty and early withdrawal on your taxes.

Even after paying the loan back, you may get less money from your retirement plan. It is because while you take up the loan against the plan, you cannot contribute further.

If you leave your job or go bankrupt, you must pay the loan in full. In case you cannot, you may owe early withdrawal taxes and penalties.

Thus, decide whether it is right for you. If you share any confusion, you must ask your lender.

4)  Home Equity Loans

These loans allow people to borrow against your property. The property acts as collateral here.  Lenders provide you with the sum by analysing the value of the property according to the market price.  However, one does not use these usually for small like paying credit card bills. One mainly taps it for big-ticket purposes like living in a home with no income by providing equity. One also uses it for buying another property by staking one as collateral.

Bottom line
These are some ways to merge your credit card debts.  Choose the one according to your credit score, income and liabilities. The popular options emerge as debt consolidation loans and personal loans to clear the debt.  Credit cards are high-interest debt that you must clear within time. It helps you save credit and achieve big lifestyle goals.

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