If you are struggling to manage your credit card debt, you might be considering debt consolidation. In order for debt consolidation to be successful, you need to be ready to make changes to your spending habits so that you avoid having financial difficulties again in the future. According to a representative from Cambridge Credit Corporation, a nonprofit credit counseling agency, most people who consolidate debt find themselves in the same financial difficulties within a couple years. Try not to use debt consolidation as a quick fix to a bigger problem but rather as a healthier financial solution.
Step 1
Gather your most recent monthly credit card billing statements and any confirmation numbers for credit card payments you made online. Write down a list of all the credit cards balances you want to consolidate. Include each account number and payment address.
Step 2
Consolidate credit card debt to a new credit card with a lower interest rate that extends beyond any introductory period. If you can obtain a credit card with a large enough line of credit, transfer the balances from cards with high interest rates to the card with a lower rate. Make certain first that the low interest rate also applies to balance transfers.
Step 3
Visit your bank or other trusted lender to inquire about a debt consolidation loan. Qualifying for a debt consolidation loan may help you if receive a lower interest rate. A lower monthly loan payment than the combined payments you are currently making on credit card debt can help make your finances more manageable. You should not rely on a debt consolidation loan if you plan to continue to use credit cards after consolidating the debts from high interest cards.
Step 4
Use the equity in your home as a way to secure a low interest consolidation loan to eliminate your high-interest debt. Since you will be using the equity in your home as collateral for the loan, you may be able to borrow more money. Make certain first that the payment terms will be more affordable for you to manage than your current credit card payments. The interest you pay on a home equity loan may also be tax deductible if you itemize deductions on your federal income tax return.
Step 5
Refinance the loan on your home if mortgage rates are lower than when you took out the original mortgage. You could come out ahead with a lower monthly payment than you have now in addition to borrowing enough money to pay off high interest rate credit cards. Factor in any costs required to refinance the loan.
Tips and Warnings
- Change your spending habits. There is no point in consolidating your debt to make it more manageable if you simply apply for new credit cards and start another cycle of bad credit habits afterward. If you are consolidating credit card debt, try to find options offering fixed rather than variable interest rates.
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