Loan & Credit Cards

3 Simple Methods to Consolidate Credit Card Debt

A credit card is one of the most commonly used financial tool. And it’s been the same for years for quite a few reasons. This mainly includes the ease of usage, its wide acceptance, and the financial freedom it offer. But there are times when excessive use of your credit card can leave you with a heavy balance that can quickly snowball into debt.

In order to get rid of this debt, you can choose to consolidate all your outstanding balance in order to either fully repay your dues or bring it down to a manageable level.

Benefits of Debt Consolidation

By consolidating your debt, you can manage your expenses better.

When you opt to consolidate your credit card debt, you can enhance your savings by saving on interest payable.

Debt consolidation can provide you with peace of mind and financial freedom as it is easier to maintain one open credit line instead of managing multiple credit lines. and juggling different payment dates.

Methods to Consolidate Credit Card Debt

Here are some ways that can help you consolidate your credit card debt:

Balance Transfer on Your Credit Card

There are multiple banks that offer you cards with a balance transfer feature. A balance transfer lets you transfer the outstanding credit card balance from other bank cards onto your credit card at a low interest rate. There are several banks that let you transfer the balance at 0% interest rate for a specific tenure. This can help you consolidate your debt and manage it conveniently.

The balance transfer facility comes with a minimum transfer amount requirement and you can only transfer up to a certain limit as well. Most often, credit cards will allow you to transfer an amount of up to 80% of the credit limit of the card you wish to transfer the balance to.

These plans also lets you choose a tenure that can range anywhere between 3 months to 1 year. You can choose the tenures according to your repayment capacity and financial constraints.

Taking up a Personal Loan

Another way to consolidate your credit card debt is by taking the help of a personal loan. While it may sound counter-intuitive to acquire more debt when already dealing with large credit card dues, keep in mind that the interest rates that you’re charged on a personal loan is generally lower than the finance charges of a credit card.

Finance charges of a credit card generally range from 15% p.a. to 18% p.a. but couple this with the fact that the interest is calculated on a daily basis and you’re looking at compounding interest, personal loans can be a cheaper alternative.

By taking a personal loan, you can save on interest charges payable and can pay off the outstanding balance on your credit card. But you have to make sure that you conduct proper research and explore all personal loan options in order to avoid risk and maximise your savings.

Opt for a Debt Consolidation Plan

There are many banks and financial institutions that provide you with debt consolidation plans. These plans help you clear off your credit card debts or any other unsecured lines of credit at a lower rate of interest. These loan facilities let you merge multiple loans and credit lines into one line of credit. This can help you manage your finances better over a period of time you choose for repayment.

But Before you Decide to Opt for Debt Consolidation, Remember:

  • To research well and explore all the options before settling on an option.
  • To evaluate your finances, make a financial plan, and more importantly, stick to it.
  • Know how much funds you require. It’s highly recommended that you do not opt for funds more than you require as it can make repaying it that much more harder.

Keep in mind

  • The banks and financial institutions that offer debt consolidation loans and personal loan will verify your credit score and take a look at your past behavior on all your credit lines. So it is suggested that you make timely payments on all your credit cards and maintain a healthy credit score.
  • Personal loans and credit cards are unsecured credit lines. If you get an option of clearing When opting for a personal loan, make sure you research well and see if the interest saved is significant as compared to making monthly payments on the loan.
  • Balance transfer plans come with an early settlement fee if you decide to pay off the transferred amount prior to the end of the tenure.
  • Make sure you make the monthly balance transfer installment in full as any amount left unpaid at the end of the balance transfer plan will accrue an interest rate of 18% p.a.
  • Make the payments on your balance transfer, personal loan, and debt consolidation loan on or before due dates in order to avoid paying any late payment penalty.
  • Keep a close eye on the balance transfer and debt consolidation promotions released by banks time to time in order to find a low interest rate debt consolidation option.
  • A debt consolidation can be the answer to your increasing debt. It is important for you to find the right way with a right plan followed with a timely execution. If executed well, a debt consolidation plan can help you attain a better financial flexibility. But regardless of which option you choose to consolidate your debt, remember that inefficient management of funds and poor financial discipline can land you back in debt.

Also Read: Reasons why credit cards are bad for you

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About Ajeet Sharma

My Name is Ajeet Sharma Financial Blogger & Founder of Financegab.com. We are a personal finance blog dedicated to personal finance & financial planners. The main aim of this blog is to help people to informed financial decisions.
View all posts by Ajeet Sharma →

2 thoughts on “3 Simple Methods to Consolidate Credit Card Debt

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