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However, don’t think you have to be left with huge balances, high interest rates, and trying to figure out how to meet just your minimum balance. If you choose to consolidate credit card bill debt, you can lower your overall monthly bills and interest rates. However, before you decide to go forward with a plan to consolidate credit card bill debt, you will want to consider the different types of consolidation, as well as the pros and cons of each. The types of consolidation access different funding sources and include transfer to one credit card, a home equity loan, debt management counseling, and retirement loans against a 401(k) or similar fund.
Credit Card Debt Consolidation
The pros of this method to consolidate credit card bill debt are that it is a simple solution where you essentially transfer all your credit card debt to one card. This type of credit card is typically easy to acquire, regardless of your debt situation, and requires no collateral. In some cases, the credit card company you are transferring to will have a special promotion to forego interest payments or any fees for the first year, which can help you out if you are able to make regular payments on the balance.
The cons are that after that first year, your interest rate will typically be around twelve percent, and interest will begin to accrue. Like most credit cards, if you consolidate and fail to make a payment on time, you will be charged late fees and potentially over balance fees. So, unless you have sufficient income to pay off the credit card balance before interest starts accruing, this means to consolidate credit card debt should give you pause. It could end up making your credit score worse and hinder future opportunities for credit card consolidation.
Credit Card Debt Consolidation Mortgage Loan
If you own your own home, you can consider a home equity loan as a means to consolidate credit card bill debt. The pros of this method are that you can use your house as collateral, and typically the interest rates on home equity loans are less than the interest rates on credit card balances.
The cons associated with using home equity loans to pay off credit card balances are that if you default on your payment, even just once, you can potentially lose your home. Another con is the potential for points and other associated set-up fees you may incur in order to acquire a home equity loan. If these fees are extensive, or your monthly payment obligation with the home equity loan is too high, you will want to look elsewhere, rather than risk losing your home.
Credit Card Consolidation With Debt Management Counseling
If you have a lot of credit card bills, you may want to consider working with a debt consolidation counselor. These groups are typically non profit, so a major pro of working with a credit consolidation counselor is that you probably won’t have to pay them a fee for their services which include helping you recognize the monetary budget you have to work with, as well as helping you work out a plan with your creditors to consolidate your credit cards, or reduce your interest rate. Typically, the agency will group your debt into one monthly payment, and you pay it to the agency, who pays your creditors for you. The goal is to consolidate credit card bill debt into one payment so you can have everything paid off within three to five years.
The cons with this are that if your consolidation representative doesn’t pay your bills on time, your credit may be damaged because your creditor will see it as a default on your payment arrangement. You are also responsible for any additional fees such as late payment or overage charges. So, if you choose this method, you will want to be certain your credit counselor is with a reputable organization.
Consolidate Credit Card Bills With Retirement Loans
Another option is to use retirement loans to pay off high credit card balances. This option is usually available to anyone who has a 401(k) or similar employee pension plan through his or her employer. With this option, a major pro is that you won’t have any credit check or be forced to go through any sort of qualification process to receive your funds. Often, the interest rates on retirement loans are some of the lowest you will find. The major con of dealing with retirement fund loans to pay off credit card debt is that you are borrowing against your retirement funds, which are supposed to be there for you when you are older and unemployed.
You will have to pay a penalty charge for accessing the funds early, and you will also have to pay taxes on that money the year you access your retirement funds. Another con many people aren’t aware of is that if you are terminated from your employment, or lose your job for any reason, you may have to pay back the full balance of your retirement loan immediately as part of the loan agreement. If you fail to do this, you will incur additional penalties for early withdrawal, and be assessed at a higher tax rate. Retirement loans are a good solution to consolidate credit card bill debt if you are looking for a quick short term solution, and know that you will have funds available to pay back the loan steadily and continue to work. They are a bad idea if you are in poor health, or have accumulated a lot of credit card debt because you have no other source of money to access. In this case, you would be depleting your retirement funds with no real means of paying them back and could end up without any financial backup when you are of actual retirement age.
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Bill Consolidation Pros and Cons
