There are different sorts of debts one can take. One of them is a credit card loan. In addition, people take out multiple loans to meet their various demands, such as college education, family assistance, and so on. However, when it comes to repayment, it becomes a difficult task to repay all the loans separately. For example, if someone has taken 5-6 loans, paying them off individually would be challenging. So, Goodbye loans are here to help you with your credit card refinancing or loan consolidation.
Credit cards can be used on rainy days. They also are a source of rewards like cash backs or other benefits. Coupled with discounts and ease of buying online, credit card sales are increasing. However, all is not roses about credit card refinancing or consolidation.
If not calculated, buying needless things off your credit card can lead to high balances and it will only get difficult to pay back in time. This is where banks earn by charging interest on late repayments. They know it is common for credit cardholders to indulge in reckless buying and delay payments, which results in big balances. This creates a bigger and bigger balance to charge interest on.
As card balances increase, it becomes a nuisance to deal with multiple balances at once, keep track of them, and repay in time. This is where debt consolidation loans come in. We will guide you with regards to what credit card refinancing or consolidation is and what plans are available for you.
Understanding Debt Consolidation
Debt consolidation refers to the combining of multiple debts or loans into a single loan. The purpose is to simplify the repayment process as the number of payments is reduced to one. Consolidation can be used for student loans, credit cards, and other debts. A debt consolidation loan often results in a lower interest rate. This is because you take the loan to pay off all your loans and then pay back this amount as a single loan in single payments.
It is not, however, as smooth as it appears. To meet the loan consolidation standards, you may need to submit lengthy applications. For someone who is inexperienced with this process, consolidating loans can be daunting.
As a result, to make credit card debt consolidation easier and seamless, we’ve prepared a guide with some of the best ways to consolidate credit card debt and help you plan. You should go over all of the methods provided in this guide to become aware of all possible options and their pros and cons.
A Balance Transfer Card
A balance transfer allows you to move all of the outstanding balances from one or more credit cards to a new one. As a result, all the cards are cleared and a new card has now the cumulative of all the amounts transferred. As an incentive for individuals to use the transfer card option, which typically comes with a cost, companies will often provide a 0% interest rate for a limited amount of time at the start.
This option, like traditional loan consolidation, allows you to pay back a single amount per month. Though the introductory rate may entice you to opt for the transfer card option, you should be mindful of the potential implications.
Pros of credit card refinancing or consolidation: You can pay back a significant chunk of your debt in the introductory 0% period. Since there is no interest charged, payments entirely go towards the principal.
Cons of credit card refinancing or consolidation: The initial period does not mean all is fine and smooth. As soon as the period ends, interest starts building up. Also, fees are charged for transferring the balances into the new balance card.
A personal loan is an unsecured loan obtained from a bank, credit union, or some other lending institution. Unsecured implies that no security or collateral is pledged. This loan also has the advantage of combining numerous payments into single payments.
These loans can be taken quickly over the phone or online. Some personal loan institutions will directly pay the creditors on your behalf for ease. Companies that provide such loans have specific criteria set to determine the interest rate for the borrower.
Pros: You can get a lower interest loan if you have a good credit score. The terms of such loans are also flexible.
Cons: If you have a low credit score, you will most likely be charged a higher interest rate.
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Debt Consolidation Plans and Counseling Companies
Debt consolidation plans are a great option if you are unable to get other options due to a low credit score or some other hurdle. These plans reduce your interest rate and convert multiple payments into single ones, just like the options discussed above.
Credit card and debt counseling companies are either for-profit or non-profit organizations that provide consulting on debt management, repayment, and negotiations on your behalf for a consolidation loan.
When people come across financial data, interest rates, and conditions, they often feel overwhelmed. Finance and credit are not fields in which everyone is an expert. To make the best selection, you must first grasp the basics of compounding interest rates, debt repayments, and consolidation. This is where these organizations’ experience and expertise come in, making them a better choice for those who are perplexed by terms like ‘APR’, ‘EAR’, or ‘debt refinancing’.
Pros: Such plans have low requirements of credit score. Also, the counseling companies employ financial experts who prepare plans and advise you throughout for the best plan. They can negotiate on your behalf a suitable method. This will save you from performing your own calculations and analyses.
Cons: Not all companies are non-profit. It is likely that non-profit ones lack quality. Profit ones charge fees for their services. They may also end up negotiating a plan whose terms do not suit your goals.
Family and Friends
We all have heard that “family is always there for you”, or “a friend in need is a friend indeed”. Well, this is just the time to test this out. Although different from the usual and documented ways to consolidate debt, this is a viable option.
You can reach out to your family members and friends to give you a loan to clear your credit debt. Most likely, you will not have to worry about your credit score or any collateral. The interest will also be most likely lower than the typical options.
Pros: The interest rate is low, chances of a collateral requirement are low and most of all, the terms will be flexible.
Cons: If you have a large balance, then you may not be able to get help from family or friends. If you happen to delay your payments, it can damage your relationship with the lender.
Home Equity and Car Refinancing
Both these loans are against your ownership, your equity in your home or car, as a consolidation loan. But bear in mind that these options should be considered as a last resort since they are riskier and pose a risk to your home or vehicle equity.
The first option, a home equity loan or Home Equity Line of Credit (HELOC) is issued against the equity in your home. The advantage is that the rates are often low since you risk your homeownership, and just about any amount can be borrowed. As evident, this option is very risky since you can lose your homeownership upon default.
The second one, car or vehicle equity, is issued against the equity in your vehicle. Much like the home loan, this option puts your car ownership at risk in case of default. However, the loan value is limited to the value of your car. The interest charge is also low for this option.
As easy or convenient as these ways may seem, it is highly recommended to consider these only when other options are not possible or have been used up.
This option is as risky as the one discussed last and should be considered a last resort.
A loan option is available in many retirement plans or 401(k)s. If you have such an account that permits you to take out a loan, you can borrow 50% of the account’s value or USD 50,000, whichever is less. These loans are simpler to obtain because they do not require a complete credit check. The only stipulation is that you have a borrowing option in your retirement plan. If you are confident in your work security, you should apply for this loan.
The interest rate will most likely be lower. There is no strict requirement for credit scores. But problems will arise if you fail to make payments or lose your job.
We have thoroughly discussed the most common, if not all, ways of consolidating your credit card debt. Be sure to understand each option and its pros and cons before choosing one. One last piece of advice, make a budget on your card and stay within it or at least pay within time to avoid any interest accruing on your balance, so you don’t have to look towards credit card refinancing or consolidation options.
If you are paying back your loan and looking for ways to consolidate your loans, our website https://goodbyeloans.com/ is a great place to familiarise yourself with all the technicalities.