Refinance Tools: Credit Card Debt Consolidation

Credit card debt consolidation involves taking a whole bunch of different credit card debts and consolidating them into one new loan. This new loan often has more favorable terms, such as a lower interest rate or a longer repayment term that allows for lower monthly payments. This means that not only do you end up with an easier way to manage your debt since you have to make only one payment, but you can actually save money in the long run.

How to Consolidate Debt

Credit card debt consolidation is generally a form of refinancing your loans. The key is to get a new loan and use that new loan to pay off as much of the existing debt as possible. The one new loan will thus be your consolidation loan. There are a number of possible ways to get a new loan to pay off your old debt:

• You can take a credit card balance transfer. Often, credit card companies will provide incentive to do this in the form of a special promotional rate. For example, you may be offered a rate of 0 percent for 6-12 months on balances transferred. However, you are usually charged a fee for taking the balance transfer (often between 3-5 percent of the total amount transferred)
• You can take out a personal loan from a bank or credit union. You may have to pay a loan origination fee for doing this, but the interest rate and terms are generally more favorable on a personal loan than on credit card debts
• You can take a home equity loan or home equity line of credit and use the money to pay off your existing debt. This can be a great option because the rate is often very low and the interest may be tax deductible. However, this also converts whatever unsecured debt you are paying off- such as your credit cards- into secured debt. The lender could thus foreclose on your house if you don't pay, while you would rarely lose your house simply as a result of unpaid credit card debt.

Make sure you understand all the costs associated with your consolidation. It is also important that you be prepared to pay the bills and that you are going to be financially responsible. Once you have paid off your credit cards with your new loan, don't charge on them any more or you could end up with the old debt and a new debt as well.

Getting Help

An experienced debt consolidation attorney can help you to explore your options for debt consolidation and can help you to determine if debt consolidation is a good idea in your particular situation.