Although Americans hold more than $ 1 trillion in revolving debt, according to the Federal Reserve, many have never tried to consolidate what they owe.
In our recent survey out of more than 1,000 credit card users, 48% of respondents indicated that they had never tried to consolidate their credit card debt.
Of those who had never tried it, 25% feared it would hurt their credit rating and 24% worried about scams. Another 22% of respondents said that consolidating credit card debt seemed like too much work.
Of course, consolidating this type of debt may not be the right choice for everyone. But if you’re held back by fear of scams, or dread the work that comes with it, these are easy problems to solve. Here’s how to consolidate your credit card debt the easy and secure way.
Why Consolidate Your Credit Card Debt?
When you consolidate your credit card debt, you take out a loan to cover what you owe on your cards. You pay your cards with that money and then focus on paying off the new loan. There are several reasons why consolidating your debt could be beneficial:
- Lower interest rate: You may be able to pay less interest on a personal loan, especially if your credit has improved since you got your credit cards.
- A simple payment: Instead of tracking multiple payments and due dates for each credit card, you only have one lender to pay each month when you consolidate your debt.
- Modify your monthly payments: If you need to create more space in your budget, debt consolidation is a chance to do it. If you qualify for a lower interest rate or stretch the term of your loan, you may get a lower monthly payment.
5 steps to take before consolidating your credit card debt
If you’re thinking about consolidating your credit card debt but you’re not sure about the process, here’s where to start.
1. Find out how much you could save
Sometimes seeing how much you’re willing to save can be the boost you need to consolidate debt. An easy way to estimate how much money you could save is to use a free online calculator.
Plug in information about your current credit card accounts, as well as the estimated interest rate and term of your new loan. The calculator will do all the calculations for you. Doing this early in the process will help you determine if it’s worth continuing to get a credit card consolidation loan.
2. Buy a loan online
If you’re worried about hurting your credit score by getting a new loan, there’s an advantage to buy personal loans online: Many lenders perform a flexible credit check to give you an estimate of the interest rate. A flexible credit check ensures that your credit rating will not be adversely affected when looking for rates.
Gather the estimated rates from a few lenders that interest you. This way you can easily compare the loan terms to find the best deal.
3. Avoid Debt Relief Scams
It is true that there are credit card consolidation scams. These are companies that vaguely promise to settle your debt for you or to help you avoid your debt altogether.
The biggest tip to avoid this is to do your research. Telltale signs could indicate that what these companies are promising is too good to be true. If you are charged a fee in advance, for example, avoid.
However, you probably don’t need to spend a lot of time evaluating debt relief companies. You really don’t need it to consolidate your credit card debt. You can apply for a personal loan and use it to consolidate your debt on your own.
4. Beware of creation fees
If you are looking for a personal loan, you will find that some lenders charge an origination fee. You can prioritize lenders who don’t charge these fees. You can also factor the additional cost into your calculations to make sure the loan remains a smart choice.
5. Don’t get a loan you can’t afford
Unlike credit cards, which you can pay off at your own pace, loans have a fixed repayment schedule. If you consolidate a high credit card balance, it could translate to high monthly payments on your new loan.
Make sure that you can easily pay the monthly loan payments before you finalize it, otherwise you risk getting into more debt and damaging your credit.
Stop borrowing after consolidating your credit card debt
Once you’ve paid off your credit cards, don’t start charging them new expenses. It will only leave you with more debt than you can afford.
Making simple changes to the way you approach your finances could get you out of trouble in the future. If you start building healthy financial habits now, they will definitely pay off down the road.
About Jolene: Jolene Latimer is a writer for Student loan hero. She holds her Masters in Specialized Journalism from the University of Southern California.