When credit card debt gets out of control, finding the right way to consolidate debt can save consumers thousands of dollars in interest and stop harassment from debt collectors.
When a consumer has difficulty paying down credit card debt or is struggling to make minimum payments, debt consolidation may be the best option. A consumer can reduce his or her credit card debts into one payment with a lower interest rate through debt consolidation. The best type of debt consolidation depends on the individual.
Although there are many types of debt consolidation, the most popular are:
Consumers can work with a credit counseling program to make a debt management plan. Credit counselors work with creditors to reduce interest rates and waive fees. The consumer then makes one monthly payment to the credit counseling company. A successful debt management program will reduce the interest rate and eliminate debt in three to five years. However, if a consumer misses a payment, credit card companies can revoke the agreement and demand payments at the original interest rates.
Consumers can seek a personal loan through a bank or a credit union to pay off credit card balances. Personal loans are repaid in installments over a specified period of time, usually no more than five years, and typically have lower interest rates than credit cards. However, consumers may find it difficult to qualify for a personal loan.
A consumer may also consolidate credit card debt by transferring existing balances to a credit card with a low or 0% APR. By drastically reducing the interest rate, consumers will be able to reduce their debt more quickly. Credit card companies typically charge a 3% fee on all balance transfers, and the introductory rate only lasts for twelve to eighteen months.
A consumer may be able to take out a home equity loan if he or she owns a house with adequate equity. A home equity loan has the benefit of having a very low-interest rate and the longest repayment period, ranging from fifteen to thirty years.
Each consolidation option has its benefits. To navigate all the debt consolidation options, a consumer may consult a debt collection lawyer that has experience eliminating consumer debt.