When money is tight and times are tough, people look for alternative ways to meet financial obligations. Consolidation of credit card debt is one way to get rid of credit card debt faster and cheaper. While there are a few ways to consolidate credit card debt, the best way differs with each person and each situation. Knowing how to consolidate credit card debt can help you to know what method is the best for you and your financial situation.
Step 1
Collect all of your most recent credit card statements. Look through them and create a full picture of what your complete financial picture is. Include information like how much total debt you have, which credit cards have the higher interest rates, and how much you can afford to pay in monthly payments.
Step 2
Consider each debt consolidation method to determine which will best meet your needs. Compile a list of the pros and cons of each method to increase ease in your decision making. Talk with a financial counselor, if you prefer, to help you in your decision-making process. One popular option is to borrow money from a bank or other lending source. Other options include a line of credit from a bank, a home equity loan or refinancing an existing mortgage. You may also consider transferring all of the credit cards to a single card with a low interest rate. Some people decide to borrow the money from family members or close friends, but this option can have significant personal risks and may damage relationships if you are unable to pay for some reason. Look at the interest rate on the different options, as the lowest interest rate will save you the most money and pay off the debt the quickest.
Step 3
Consolidate all of your credit card debt into one single debt. Most often, this is done by using the money from the consolidation loan to pay off the balances of each card, leaving one larger remaining loan to pay. When using your mortgage to consolidate, this differs in that you are now paying less on your mortgage loan and using the excess to pay down credit cards more rapidly.
Step 4
Pay off your consolidation loan as fast as you can reasonably manage. Pay at least the required minimum monthly payment on the loan. If you can, pay more than the minimum each month to help get out of debt faster and save money on interest over the life of the loan. Check, however, that your loan doesn't have any penalties that you will incur for early payoffs. If it does, check that against what you will pay in interest to see which will be the better deal in the long run.
Step 5
Be wise with the use of your money while you are getting out of debt. Remember that any penny you save can be applied to paying off your loan faster and save you money in the future. Use any excess money that you have to go toward paying down your consolidation loan. Refrain from any unnecessary purchases or upgrades to current commodities (like cable or cell phone plans) until you are debt free.
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