For most Americans, using a credit card is a daily occurrence. It makes sense; they’re accessible, easy to use, and constantly showing up in our mail whether we need them or not. But just like anything else, there are pros and cons to using a credit card. 

Major credit cards often come with reward programs and perks which encourage people to use them. They also allow you to spend more money than you actually have at any given time, so people can make large purchases that they normally wouldn’t be able to. As reassuring as it sounds to have so much within your reach, spending beyond your means can be quite risky. Such opportunities come with high interest rates, so what happens when the credit card debt piles up?

Credit cards work like small-scale loans, which means you have to pay them off regularly to keep your balance at zero and maintain your credit score. Many people have several credit cards, which can make it even more difficult to pay them all off so they don’t negatively affect your credit score. One way to manage your credit card debt is through a “credit card consolidation loan.”

A credit card consolidation loan allows you to combine all your credit card expenses into a single sum to make it easier to manage and improve the credit score. Read on to learn how to find good arrangements, and see whether you might benefit from a credit card consolidation loan yourself.

How Does a Credit Card Consolidation Loan Work?

There are many different lenders for credit card debt consolidation loans, which means the terms and conditions will vary based on where you live and the lender you choose. But the basic idea behind all of these loans is fairly straightforward. Instead of having to keep track of multiple cards, annual percentage rates, terms, and additional fees, you borrow money to pay all your cards off entirely and end up with a single loan instead. 

In order to make this kind of consolidation loan worth it, you’ll want to make sure that the new loan has an overall lower interest rate than the credit cards you’re attempting to pay off to help you save money. While all debt consolidation loans have their advantages and drawbacks, some of them can be riskier than others. The one that suits you best will depend on your specific financial situation.

Types of Credit Card Consolidation Loans

Personal Loans

Applying for a personal loan with online lenders, credit unions, or banks can be an excellent way to settle your credit card debt. Personal loans tend to have the lowest rates. You can choose among different loan options depending on whether you want a secured or unsecured personal loan, how much money you need to pay off your debt, and how soon you can pay it back.

To consider you for a personal loan, lenders will usually do what’s called a “soft credit check,” which is a way for them to review your credit history without affecting your credit score. This allows them to evaluate whether you’re a trustworthy borrower. If you want to have a good credit history in the future but afraid that your application can be denied, a soft credit check loan can become a great option. 

If approved for a credit card consolidation loan, you’ll likely have a longer amount of time to repay the loan than you would for each individual credit card. A debt consolidation loan can help you lower your monthly payment by allowing you to repay the existing debt over the extended loan term. Just be sure to review the terms and conditions, as there may be additional fees included other than the interest rate, for example, origination fees.

Working with a nonprofit credit counseling organization

Nonprofit credit counseling organizations offer you financial advice and help create a plan to pay off your debts. After being approved to work with a credit counseling organization, they will evaluate your debts and negotiate with your creditors to lower your monthly payments and create a plan for paying off the debt. 

Occasionally, a nonprofit may advocate for a lowered interest rate in your favor while consolidating debt and help you repay the debt faster, or have your monthly payments decreased. The credit counseling organization may ask you to close the current credit cards that you have open, in order to avoid additional charges and debt. 

Balance transfer credit card

Balance transfer cards are ones that allow you to transfer the balances from all your other credit cards onto the new card. They usually offer introductory deals where you don’t pay interest for up to a year or more. However, depending on the card and the specific deal, you may have to pay other fees to open one. You’ll also want to make sure that the card you’re opening will have a high enough limit to transfer all your debts onto it.

The Bottom Line

Although there is no such thing as a one-size-fits-all solution when it comes to handling debt, a credit card consolidation loan can be beneficial if you plan accordingly. You can get the most out of this loan by evaluating your financial health, planning out precisely how you’ll pay back the money, and not agreeing to any arrangement that you don’t fully understand.

When making a big decision like applying for a loan, make sure to do your research and read all of the terms and conditions. Don’t be afraid to reach out to a professional, a friend, or a family member with good financial know-how to ask questions. 

CreditNinja offers affordable credit card consolidation loans that are carefully tailored to suit your needs. To check out our offers, start your application today.

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