If you’re dealing with big credit card balances, you don’t need a financial expert to tell you it can be overwhelming. But with the right advice, you can develop a plan to get on top of your credit card bills and start pursuing other financial goals.
While the suggestions in this article may all help you consolidate your debt, you should consult a financial advisor to find a solution that’s best for your situation.
Credit card balance transfer
Sometimes the problem isn’t the amount of debt you have so much as it is the number of payments you have to keep up with. A credit card balance transfer allows you to move balances from one or more credit cards onto one new credit card with a lower interest rate. This way, you only have to worry about one monthly payment.
Ideally, you want to find a balance transfer credit card that offers a promotional low or 0% interest rate for a certain period of time. If you can pay off your entire balance during the promotional period, you could minimize interest charges as well as the number of bills you need to keep track of every month.
Debt consolidation loans
If your monthly debt repayments are more than you can manage, you might consider a debt consolidation loan, which rolls multiple debt balances into a single loan with one monthly payment.
Debt consolidation loans may offer lower interest rates or longer repayment terms than your other debts. With a lower interest rate and longer repayment term, you could have smaller monthly payments, creating more room in your budget for other expenses.
Debt management plans
A debt management plan (DMP) is a financial service that some credit counsellors offer. It’s another way to consolidate your debt into one affordable monthly payment.
With a DMP, your counsellor will reach out to your creditors on your behalf to negotiate your repayment terms. While you’ll have to pay 100% of your debt, your counsellor can ask to reduce or remove your interest rate or fees, or extend the time you have to pay.
Your creditors aren’t obligated to accept the DMP, but if they do, you’ll make regular payments to your credit counsellor, who will pay your creditors according to the plan.
Home equity loans or lines of credit
Another way to consolidate a significant amount of debt is with a home equity loan or home equity line of credit (HELOC). Both use the equity in your home, but work differently.
With a home equity loan, you’re given a lump sum payment, which can be up to 80% of your home’s value. You’re charged interest on the total amount, and once you pay off your loan, you can borrow again.
A HELOC works like a credit card. You can borrow money as you need it, up to the credit limit, pay it back, and then borrow again. With a HELOC, you can borrow up to 65% of your home’s value.
You can use your equity loan or HELOC to pay off your debts, then repay the home equity loan or HELOC, usually at a much lower interest rate.
What’s the best debt consolidation option for you?
Using a credit card balance transfer, a debt consolidation loan, a DMP or the equity in your home are just a few ways to get on top of large credit card balances. If you’re struggling with debt and don’t know the best way forward, consult a financial expert who can evaluate your financial situation and help you find the best debt solution for your needs.
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