No one likes to be saddled with large amounts of credit card debt. Not only are the interest rates typically substantially higher than with other types of debt, but the interest charges can often make you feel as though you aren’t making any headway at all, which can be quite demoralising. Instead of suffering with all that credit card debt, it may be better to consolidate your debts, simplifying your monthly repayments and likely lowering your interest rate as well.
Types of Debt Consolidation
The most common way to consolidate credit card debt is through a personal loan. You’ll use the loan to pay off all of your credit cards so you only have one monthly repayment to make going forward. Personal loans often have much lower interest rates, which can save you a lot of money down the track.
You can also consolidate your credit card balances by opening a new card and transferring the balances to this new account. In some cases, your new creditor will offer you a promotional rate for the introductory period, like 0-percent interest for the first year on balance transfers, allowing you to pay off a significant chunk of your debt before getting charged any interest on it. Make sure that any transfer fees involved won’t negate the potential interest savings.
Home equity loans let you borrow against the amount of your home that you own. Like mortgages, these loans have incredibly low interest rates, so you can save a lot of money on future interest payments. However, you’ll be putting your home up as collateral for the loan, so you risk losing your home if you are unable to make the repayments.
Future Savings in Money and Time
The amount of money that you can save by consolidating your credit card debts will depend on which method you choose, your current interest rates, and the interest rate of your consolidation method. It makes sense to take the time to work out the numbers in advance so you can be sure you will actually save money by consolidating your debts. By lowering your interest rates, you may also be able to repay your debts faster, as less of your monthly repayments will be going towards interest. An experienced financial planner can help you weigh your options to determine if debt consolidation is right for you.