Credit Card Debt Consolidation – All You Need to Know with Guide, FAQs & More

Too much credit card debt can be a scary thing for many and it does not get any better over time if you don’t take the right measures. 

I am here to tell you how you can get rid of your credit card debt by using debt integration techniques. 

Without further ado, let’s discuss all you need to know about this topic.

credit card debt consolidation

What is Credit Card Debt Consolidation?

Credit Card consolidation is a financing option used by many people around the world. It works by paying off credit card debts through availing finance from a third party.

There are a number of benefits to this refinancing option, which I have discussed throughout the article. However, If you don’t use it in the right manner, it might become a nightmare for your financial life.

How to Consolidate Credit Cards Debt? – Possible Options

There are many options for the consolidation of card debt. These debt consolidation loans range from short term to medium term loans, and at times long term loans are also a viable option. 

Let’s look at the most commonly used debt consolidation loans for credit card debt

Personal Loan

Personal loans also have their sub-categories, involving many types of different loans. It is the most common loan that you can avail of to pay back your credit card repayments. 

Personal loans usually have a lower interest rate compared to credit card loans, making it an appropriate solution for the consolidation of credit card debt

Make sure you pick the right amount and right payback period because it will determine your annual APR interest rate

Check some great personal loans over here

Direct Lending Loan

Direct lending is an attractive scheme for many. It does not involve any third party in the loan agreement. The borrower and the lender have direct contact with each other, hence the name: direct lending. 

Direct lending is useful because the terms and conditions are tailored according to your needs. You can always mend the agreement terms through negotiations.

The interest rate and the monthly payments will depend on the conditions of the loan. 

Budget Loan

A budget Loan is a short term loan, usually extending from 1 to 2 months. The purpose of this loan is to help you keep up with your budgeting plan. If you are short of any routine expenditure due to unseen circumstances, this loan will help you a lot. 

The budget loan has a high APR due to its short-term nature, but at times, comparatively lower than a credit card. Now you have to make sure and calculate that the interest repayments of this loan will be lesser than the card repayments. 

Otherwise, consolidation through this loan scheme might not be a prudent course of action. 

Uwise has some amazing personal budget loans, you can refer to them.

Balance Transfer

Balance transfer implies moving one owing card balance to another card. It is usually done by getting a new credit card. The new card usually offers a promotion with a lower interest rate compared to your existing one. 

You need a good rating and payment history to qualify for it.

This is a risky option which might be quite effective and easy to use in the beginning. In the long run, it can prove to be extremely risky and might harm your credit rating. 

In my opinion, you should keep this option as a last resort. 

Is it a Good Idea?

This form of debt consolidation can be quite beneficial if done carefully. The reason I am saying this is because cards have high-interest rates. 

Moreover, the annual APR on aggregate is 20%-30% higher than long or medium-term loans. This means that if you don’t integrate your credit card debt, you might be paying an extremely high amount of monthly interest payments. 

Due to this, I have seen many people suffering to pay back the principal amount of the loan and stuck in a continuous loop cycle.

How Much Does it Cost?

The cost of consolidation of credit card debt depends on many factors. Let’s look at some of the top ones:

Interest Rate 

The first and the most important factor in play here is the annual APR rate or the interest rates that are going to come along the debt consolidation loan. It is important because usually, interest payments decide how much more you are going to pay on the principal amount. 

The higher the interest rate, the more you are going to pay back in monthly repayments of the debt consolidation loan

Payback Period

The payback period is not a direct factor that affects the cost that you are going to incur on the repayment of the debt consolidation loan. It is an indirect factor that affects the interest rate on the debt consolidation loan. 

The longer the debt period, the lesser you are going to pay in interest payments (in relative terms). The shorter the payback period, the more money is going to flow out of your pocket. 

Upfront Costs

There are some straight-up costs as well that you will have to incur like the application cost, form fill up, and other sundry expenses. 

These costs do not consolidate to a big amount on themselves but you still have to incur them. Every company and lending institution has different upfront costs. 

You can see my article related to the top debt consolidation loan companies in the UK here. It mentions the lending institutions which are authorised and regulated by the financial conduct authority of the UK. 

Transferring Costs

When your application for a debt consolidation loan is accepted, the loan balance is then transferred to your bank account. You will most probably have to open a bank account in that specific bank or institution from which you are borrowing. 

You will also have to pay a bank account opening cost and a balance transfer cost of the funds as well. 

Does Credit Card Debt Consolidation Hurt My Credit Score?

Credit card consolidation or, in this matter, any debt consolidation does not hurt or improve your credit score on its own. It depends on you how you manage it. 

If you don’t manage your debt consolidation loan in the right manner, it is going to hurt your credit rating. If you manage your debt well after consolidation, you might be on the path to improve your credit rating. 

One important thing that I would like to highlight here is that it is easier to manage your debt after consolidation compared to unconsolidated debts. Therefore, it provides you with a greater chance of improving your credit rating than deteriorating it. 

FAQs

Can I get a zero-interest balance transfer?

You might be able to bag one up, only if you have an outstanding credit rating and history. A credit rating above 960 is considered to be excellent. 

With that kind of credit rate, you might be able to get much more than a zero-interest balance transfer.

Is balance transfer the best way to consolidate debts?

In my opinion, it is not the best way of consolidating debt because you need some prerequisites for availing this scheme and it is quite addictive and risky in the long run. 

You might harm your debt management journey adversely because managing this scheme may prove to be difficult. 

How to avoid credit card debt?

I would highly recommend you to learn about personal finance and debt management. Apart from that, don’t make bad purchasing decisions. Budget your needs, wants, and debts. 

A golden rule while buying with a card is to consider if you can afford to make that purchase with cash. If the answer is no, it’s probably not a wise purchase. 

What are my other options to deal with credit cards debt?

Budgeting a part of your income for the repayments might be a really good idea. This way, you will be able to break the chain of this money-sucking debt loan. But to make this work, you will have to cut off your usage of a credit card. 

A thumb rule is to make sure your income is greater than your expenses. 

Can I use my credit card to consolidate other debts?

It is not a good idea because credit cards have a higher interest rate, but if you have any debt which has a higher interest payment rate, consolidating that debt through your card would probably be an appropriate option. 

Final Thoughts

A credit card is a necessity in this age for many people, but we should try to manage its use to the best of our abilities. Excess of anything is bad and that’s why spending too much through credit cards can cause you problems. 

Always try to balance your finances or you may find yourself in deep waters. If you have any more questions regarding debt consolidation loans, please feel free to reach out. I’d love to help.


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