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How to Consolidate Your Credit Card Debt

Credit card debt consolidation is a dependable approach to eliminating debt and improving your finances. Although it is a process that requires much thought and planning, you will soon find that you have the potential to reap the rewards of a debt free life. The following information will help you determine which type of debt consolidation is right for you, and how to obtain the credit relief many other Americans already enjoy.

Debt Consolidation Options

There are two methods of credit card debt consolidation. Whichever one is right for you will depend on your amount of debt, your financial situation, and homeowner status.

Loans
Banks will offer loans to their customers who express a desire and need for debt reduction. These loans are often offered with very low interest rates, beneficial for borrowers who have been paying the high interest rates specified by most credit card companies. There are unsecured loans, which will usually require the borrower to have a superior credit rating. There are also home equity loans and home equity of lines of credit. These will be offered at an even lower interest rate than unsecured loans, since the borrower’s home will secure the collateral for the loan. A percentage of the home’s value will determine the amount of the loan.

To be considered for a loan, the borrower simply needs to set up an appointment with a credit counselor or personal banker at their local bank. The banker can then provide further information to help determine which loan is the most fitting to suit the client’s personal needs. If a secured loan is selected, there will most likely be more of a process, such as home inspection and appraisal.

Once the borrower has obtained the loan, they may pay off their remaining credit card debt. Loans, whether secured or unsecured, may improve the borrower’s credit rating even further, since a great amount of debt is being accounted for at once. The borrower will then pay back the loan at payments determined by the bank, but the monthly bill is most likely to be far less than the sum of all the credit card bills received prior to the loan. Also, the fact that the loan will be at a lower interest rate will allow the borrower to make more payments on principal, not interest.

Balance Transfer
For those Americans who do not own a home or who lack the means to obtain a bank financed loan, there is the option of credit card consolidation. With this method, the borrower transfers balances from several high interest rate credit cards to one, low interest rate card.

To do this, you must first find and apply for a low interest credit card if you do not already have one. The best card that to suit your debt reduction needs will be one that has a low introductory rate; many offer rates of 0% APR for the first six months. This is especially helpful if you think you may be able to pay off the debt within that time period. If not, then a card that offers a low interest rate, even if it does not offer any introductory benefits, is the wisest choice.

Be aware of the policies of each credit card. Balance transfer fees are common, and they will only add to your debt if you are unable to pay them in a timely manner. A simple phone call to the credit card company will determine if there are any extra fees. If either requires any significant balance transfer fees, you must be prepared to pay this amount before you make the transfer.

After all balances are transferred to the low interest card, you will begin to make payments toward this one balance, as opposed to the several high interest balances prior to the consolidation.