Best ways to consolidate credit card debt

Debt consolidation is defined as a strategy to fuse all your existing debts into one account. This may help you in many ways. First and the most important use of debt consolidation is to minimise the interest payable. Debt consolidation can also help you manage your finances conveniently with only a single account to manage at a time.

Today, we’ll take a look at the best ways to consolidate your existing credit lines.

Credit Card Balance Transfer

Balance transfer facility associated with your credit card helps you transfer outstanding debts on to your credit card from your credit cards from other banks. There are a number of banks that offer you with 0% balance transfer plans with your credit cards. Balance transfer programmes work perfectly for you when other banks’ cards have higher interest rates or finance charges. This can help you minimise the interest payable and enhance your savings.

Once you opt for balance transfer facility, you can make the repayment in the form of easy and affordable monthly instalments. All balance transfer plans come with a flexible range of repayment tenures for you to choose from. You can select a tenure based on your affordability and repayment capacity.

Here are some things you need to consider before you opt for a balance transfer plan to consolidate your current credit card debts:

Multiple banks offer you with balance transfer plans with a competitive range of interest rates that are lower than your card’s finance charges.
There are a number of balance transfer plans that come with a 0% p.a. interest rate.
A 0% balance transfer plan may charge you with a one-time upfront fee.
Balance transfer is allowed only when you have enough unutilised credit limit to offset the transferred balance.
The interest rate of a balance transfer plan may depend upon your credit score and other liabilities.
Approval of balance transfer application may depend upon your current debt-to-income ratio.
Most of the banks allow you to settle the balance transfer amount before the maturity of the facility.
The lock-in period of balance transfer plans may vary from bank to bank.
Keep a close eye at the promotional offers related to balance transfer released by banks time to time.

Opt for Personal Financing

Another popular method to consolidate your credit card debt is taking up a personal loan. Opting for a personal financing is one of the most talked about ways to consolidate debts. The reason being the lower interests associated with personal loans. Here’s what makes a personal loan a promising debt consolidation option:

As compared to a credit card, a personal loan comes with a lower interest rate. At times when the difference between the interest rates of the two is not huge, the aggregate difference between the interests payable is can be very high.
If you pay just the minimum monthly instalment on your credit card, you might find yourself in an endless cycle of existing debts. Whereas, if you opt for a personal loan, by paying monthly instalments on time, the debts reduce on a monthly basis.
A personal loan is easier to pay off than a credit card debt. Once you use up the personal loan amount obtained to offset your credit card debt, you can make the repayment for your loan scheme in the form of affordable instalments over a tenure of your choice and affordability.

A personal loan can be your best deal if you want to consolidate debts in most of the cases. But there are some limitations to this method. Let’s take a look at some things you should keep in mind before turning to a personal financing scheme:

The repayment of a loan are not as flexible as the repayment of credit card debts. You are required to pay the monthly instalments on time with a personal loan. In case you do not pay the loan amount instalments over the agreed upon tenure, you may be charged with a late penalty.
Although a personal loan may look like a perfect helping hand with a lower range of interests charged, keep in mind that you might end up paying a higher interest in some cases. If your credit score is on the lower side, the personal loans obtainable may come at higher interest rate.
If you opt for longer tenures in order to pay lower monthly instalments for a loan, you should also understand that it will also mean that you are repaying way more than the amount you are supposed to pay.
Keep in mind that a personal loan also has some fees and charges associated with it. You may have to pay one or more of the following fees with a personal loan: processing fee, stamp duty, prepayment fee, late payment fee, insurance or takaful contribution, and many others.

Approach Licensed Money Lenders

If you don’t find a suitable personal loan scheme for your current debt consolidation requirements, you can approach license money lenders with the request for a loan. These lenders, unlike banks or other financial institutions may not charge you with an interest based on your credit score. Also, you can obtain funds much faster from a licensed money lender as the process doesn’t require a lot of time for documentation. But you should keep in mind that the funds obtained by a licensed lender may not be as high as the funds obtained through a bank’s personal loan.

Opt for Debt consolidation Plans

There are a number of financial institutions and banks that provide you with debt management plans to help you merge all your existing credit lines into one account. These plans provide you with a debt management counselling and find you a suitable debt consolidation financing plan to suit your current needs.

Mortgage or Vehicle Loans

Another way to clear your credit card debt is by taking a mortgage loan or a loan against your vehicle. As a vehicle or mortgage loan is a secured loan, the interest rates associated will be lower than credit cards’ finance charges. In these cases, you house or vehicle will act like a collateral and it can be easier to obtain funds. But make sure to pay the monthly instalments on time as your property might be at stake.

Before you decide to consolidate your debts into a single account, you should consider the following:

Explore all the options available and conduct a well-organised research on your own on the market trends and banks’ prevailing rates.
Make a plan and evaluate your finances to understand how much funds you require.
Keep a good credit score by paying monthly instalments of your current credit lines on time.
Do not exceed the assigned limit on your credit card as it may affect your credit score.
Always read terms and conditions associated with balance transfer plans, debt consolidation plans, and personal loans carefully.

Opting for debt consolidation on your existing credit lines can help you achieve a financial freedom. It is always recommended that you make a plan before opting for a debt consolidation method and execute the plan timely. Consolidating your current debts can help you enhance your savings related to the interest payable.