There’s a saying that sometimes you have to take the good with the bad. When it comes to high-interest credit card debt, it’s best to leave the bad behind. A debt consolidation plan can help.
Why consolidating makes sense
Bad debt — like that carried on your revolving credit card accounts — means you’re paying more in interest and potential penalties, and late fees than the items you purchased cost you originally. Unless you like paying more for your items, debt consolidation can help you keep more money in your account rather than in the pockets of your creditors.
How credit card debt consolidation works
In general, debt consolidation allows you to combine all of your outstanding debt into a new loan. Looking only at credit card debt, you could receive a lower interest rate, a lower monthly payment or both by consolidating.
Getting started with credit card debt consolidation means listing all of your outstanding bad debt. Be sure to indicate balances, monthly payment amounts, and the name of the creditor. Add up your total balances to get a final figure of your outstanding debt. That’s the number you’ll ask your loan representative to help you pay down.
If approved for a loan to consolidate your card debt, your credit report will show you’ve cleared outstanding card balances. Your credit rating may be viewed more favorably than before. But you’ll need to stay current on the consolidation loan payments if you want to maintain a higher credit rating and remain in good standing with current and future lenders.
Credit card debt consolidation can also help protect your financial outlook. Think about it: The less you spend on debt repayment, the more you save toward your financial future. Whether it’s saving for a new home or car, eliminating debt can help make that dream come true. Plus, one small payment is easier to manage than making many payments to multiple creditors every month. Use a calculator to find out how long it will take you to pay off debt or how debt consolidation might help ease paying debts.
What’s the best way to consolidate card debt?
There are multiple loan types that may be available to help you consolidate your credit card debt. For starters, consider tapping the equity in your home. LGFCU’s Home Equity Line of Credit (HELOC) allows you to borrow against the value, or equity, your home has built up. If you qualify, a HELOC may give you the money you need to cover all your outstanding credit card debt. Remember, that there are tax implications when using a HELOC for purposes that don’t involve home improvement. Talk to your tax advisor for more details.
Similarly, the Credit Union’s Signature Personal Loan could help combine separate credit card debts into one single, and hopefully lower, payment. There are no application fees, maturity dates or fixed repayment terms. And if you want to get the lowest rate possible, use payroll deduction to make payments.
A last resort to consolidate your debt is to find a lower rate card and transfer outstanding balances. Our Visa® Credit Card offers a competitive rate with no balance transfer fees.
No matter which option you choose, make a plan to deal with debt this year! If you need additional support, contact your local branch for financial counseling to put together a debt elimination plan.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance. This article originally appeared in January 2016.