Did you know that nearly 4 out of 10 Americans have revolving credit card debt?
Each month, these balances accumulate interest and they often do so at double digit percentages. Consumers drown in these finance charges and many simply pay the minimum amount in efforts to stave off debt collectors.
Many consumers could rapidly pay off their debts if it wasn’t for these finance charges. Fortunately, with a bit of creativity, there are ways to eliminate this debt and get your head back above water. Let’s examine the top 5 ways to consolidate credit card debt.
Refinancing Your Home
One of the best ways to consolidate credit card debt is to refinance your home. Various home equity programs exist that allow you to get cash back when you refinance your home. With home prices soaring across America, your home could be worth more than you think.
Because of this, homeowners can tap into the equity of their homes in order to use the cash to pay off high interest debts. While the total balance of your mortgage will go up, you’ll be refinancing your credit card debt at a much lower interest rate. Home equity lenders specialize in these types of arrangements and a licensed mortgage banker can help you crunch the numbers for your exact situation.
0% Balance Transfer Credit Cards
At first, it might seem counterproductive to move one credit card debt to a new credit card. When you dig a bit deeper into the details, these offers can provide value as long you follow two important rules.
1) You must commit to paying off the balance before the introductory 0% balance transfer ends.
2) You can’t be tempted to use your old credit card now that the balance is $0.
After the 0% balance transfer ends, you will likely be paying the same interest rates you were paying before you rolled your debt over onto the balance transfer card. If you start using your old credit card, you’ve compounded your problem.
You’ll also want to take note of the balance transfer fee. Most financial institutions charge you up to 3% to roll your old balance over onto their new card. Just keep in mind that if you transferred a balance of $10,000, you’d be responsible for paying a $300 balance transfer fee.
Using a Personal Loan to Consolidate Credit Card Debt
Personal loans are rapidly becoming one of the best ways to consolidate credit card debt. Depending on your personal network, you might be able to secure a personal loan from a friend, family member or even a religious organization.
Many services have emerged that connect investors with debtors in terms of providing the debtors with an unsecured line of credit at a lower interest rate than most banks.
If you could get an unsecured loan at a lower interest rate than your credit card’s APR, this loan will help you get out of debt quicker.
Since many personal loans do not require you to start paying back the loan until 45 days after you sign the promissory notes, you might be able to bank an extra paycheck or two before the first payment on the personal loan is due.
Taking Out Loans Against Your 401k
Many financial advisors will strongly advise against taking out a loan against your 401k plan. The concern is that you are burning the candle at both ends in terms of taking out a loan on your 401k. While you could pay off your high interest credit cards with a 401k loan, you aren’t gaining that valuable compound interest that helps your investment nest egg flourish as you get older.
Before you call up your investment advisor and ask for the loan paperwork, you should strongly consider talking to a trusted advisor who has no skin in the game in terms of your investment accounts. This is a personal decision and you shouldn’t make this decision until you’ve thoroughly weighed the pros versus the cons.
Evaluate Your Options
Rate Rush has emerged as one of the leading personal financial resources for consumers on the web. Getting out of debt can seem like a daunting task. While it isn’t easy, it’s certainly doable and Rate Rush provide you with the best resources for helping you flex your financial muscle.
As long as you put your best foot forward, you can dig yourself out of the hole and experience true financial liberty.
