Best Credit Card Consolidation Loans Of October 2021
The best credit card consolidation loans offer low rates, flexible payment terms and direct payment to creditors. Compare your options for credit card consolidation.
A credit card is a personal loan that pays off your high-interest credit cards, reorganizing multiple payments into a single, fixed monthly payment over a set term.
Here are credit card consolidation loan options and other factors to help you decide if consolidation works for you.
A credit card is a personal loan that pays off your high-interest credit cards, reorganizing multiple payments into a single, fixed monthly payment over a set term.
Here are credit card consolidation loan options and other factors to help you decide if consolidation works for you.
What Are The Key Similarities Between Debt Consolidation And Credit Card Refinancing
Both debt consolidation and credit card refinancing require you to take out a new loan. There are a number of different sources of financing you can use to consolidate debt, including personal loans and home equity loans. The availability of a new loan to either consolidate or refinance debt will depend upon your credit, income, and other financial details.
You can also get a loan that’s specifically marketed as a “debt consolidation loan.” These are sometimes available even to borrowers who don’t have very good credit. But they can charge high interest rates and expensive fees, so you’ll want to read the fine print very carefully if you’re considering this type of financing.
are an option for both debt consolidation and debt refinancing. When you do a balance transfer, you get a credit card that allows you to move other debt onto it. Usually, you can only move credit card debt onto the new card, but some card issuers will give you balance transfer checks you can use to pay off other loans. Balance transfer cards are especially useful for credit card refinancing because they make it so easy to transfer the balance from your old card to your new one.
Refinancing Through A Personal Loan
Banks, credit unions and online lending hubs such as SoFi and LendingClub offer consolidation loans, which can simplify multiple debts into one payment.
With personal loans, another form of unsecured debt, interest rates are almost always lower than regular credit card rates, Sullivan says, and you don’t have to worry about the interest rate skyrocketing after a certain period of time. Also, the fixed payments of a loan ensure that you will pay the debt off in a set amount of time, unlike credit card debt, which you could carry for years if you only make minimum payments.
However, personal loans are not the cheapest option. You’ll likely pay more in interest with a personal loan than you would borrowing from the equity in your house, says Sullivan. Also, if you can pay the debt off during a credit card’s promotional period, you may save more money going that route.
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What Does It Mean To Refinance A Loan
Loan refinancing refers to the process of taking out a new loan to pay off one or more outstanding loans. Borrowers usually refinance in order to receive lower interest rates or to otherwise reduce their repayment amount. For debtors struggling to pay off their loans, refinancing can also be used to get a longer term loan with lower monthly payments. In these cases, the total amount paid will increase, as interest will have to be paid for a longer period of time.
Taking From Your Retirement Account
While tapping into your nest egg may leave you without the hassle of dealing with creditors, this should be your option of last resort.
Under the Coronavirus Aid, Relief, and Economic Security Act, you can with draw up to $100,000 in 2020 from retirement plans, and have up to three years to pay taxes on the withdrawal. You won’t have to pay the 10 percent penalty if you’re younger than 59 1/2. You can also recontribute that money to your retirement account in one or more payments over three years. The recontributed amounts will not count toward the maximum contribution limit in the year that the funds are recontributed to a tax-deferred retirement account.
These rules apply only to those who have been affected by the coronavirus, which can lead to COVID-19. That could mean that people in your family have been ill from the disease, or that your business has had to close because of shutdown orders.
But be careful: Even if you are eligible to make penalty-free withdrawals, taking extra money out to pay off debt could put you in a higher tax bracket, Lehman adds. Instead, explore other options such as loans, equity or even borrowing from family members, he suggests.
Also, be careful to change the behaviors that contributed to the accumulation of debt in the first place. The last thing you want to do is take out a loan and end up running up your credit cards again, Gerstman says.
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What Is A Credit Card Refinance
A Credit Card Refinance is another name given to a credit card debt consolidation loan. This type of personal loan enables you to pay off all your credit cards and, in turn, repay the amount you take out in monthly installments.
If you have several credit cards that you pay every month, you can lower your interest rate by applying for a Credit Card Refinance personal loan.
For example, maybe you have 6 credit cards that you have maxed out. You can apply for a personal loan for the amount you owe on all the cards and pay them off. In turn, you only have to pay off the Credit Card Refinance personal loan. Since you paid off the credit cards with the Credit Card Refinance personal loan, you have 6 fewer bills to pay.
You can apply for a Credit Card Refinance personal loan and reap some major advantages, provided you have a good enough credit score to qualify for a reduced APR.
If you are having a tough time meeting your current credit card bills, taking out a Credit Card Refinance personal loan with a lower APR will make paying off your debt cheaper. Once you find lenders that specialize in this type of funding, you can start making comparisons.
What Is Loan Refinancing
Refinancing a loan allows a borrower to replace their current debt obligation with one that has more favorable terms. Through this process, a borrower takes out a new loan to pay off their existing debt, and the terms of the old loan are replaced by the updated agreement. This enables borrowers to redo their loan to get a lower monthly payment, different term length or a more convenient payment structure. Most consumer lenders who offer traditional loans also offer refinancing options. However, for products like mortgages and car loans, refinancing loans tend to come with slightly higher interest rates than purchase loans.
The primary reason borrowers refinance is to get a more affordable loan. A lot of the time, a refinance can lower the interest rate. For example, a homeowner with good credit who took out a 30 year mortgage in 2006 would likely be paying an interest rate between 6% and 7%. Today, the most qualified borrowers can receive interest rates lower than 4%. Accordingly, that homeowner could shave more than 2% off of their interest rate by refinancing their loan, saving them hundreds of dollars a month.
| 30 Year Mortgage Before Refinancing | After Refinancing |
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| $514 |
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Best For Smaller Loans With A Credit Union: Penfed
Overview: Pentagon Federal Credit Union, known as PenFed, offers unsecured, fixed-rate personal loans for debt consolidation.
Why PenFed is the best for smaller loans with a credit union: You can borrow as little as $600, and credit unions generally have lower costs and fees than other lenders because theyre not-for-profit businesses owned by their members.
Perks: PenFed does not charge origination fees, annual fees or prepayment penalties. The application and approval process can be done online or at one of PenFeds branches, with approval in as little as one business day.
What to watch out for: You must become a member of the credit union to receive a loan, and there is a $29 charge for each late payment. Also, all loans are subject to a minimum monthly payment of $50.
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How To Choose Between Many Options To Pay Down Your Plastic
by Tamara E. Holmes, AARP, April 3, 2020
En español | Nothing can sink a financial plan faster than debt, and seniors already weighed down by credit card debt may find themselves even further in debt because of the coronavirus.
More senior households were in the red before the coronavirus hit, says Brandy Bauer, a spokesperson for the National Council on Aging . In 2016, 60 percent of households headed by someone 65 and older had debt, up from 51.9 percent in 2010. The median amount of debt they carried was a little over $31,000.
A number of factors have contributed to the problem, Bauer says. Some were near retirement age when the Great Recession hit and saw a lot of their resources liquidated, or significantly decreased, she says. Others struggle with medical debt and may find themselves reaching for credit cards to pay their bills. As unemployment mounts during the state-ordered shelter-in-place orders, many older workers will wind up paying bills with plastic until they can get unemployment or other government relief.
“Debt can be paralyzing, says Randall T. Lehman, a wealth management advisor at Northwestern Mutual, based in Fort Wayne, Indiana. So an opportunity to refinance it to make payments more manageable may be tempting to those trying to dig themselves out. There are a number of debt consolidation options. Experts chime in on the pros and cons of each.
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Balance Transfer Credit Cards
One option for consolidating credit card debt is a balance transfer to a new credit card with a low or 0% promotional interest period. But, if you dont pay down your balance before the promotional period ends, your interest rate could go up, costing you money. By comparison, a Marcus personal loan has a fixed rate, so you wont have to worry about varying interest rates.
When doing a balance transfer, youll want to make sure that whichever credit card you use to consolidate your debt has a high enough credit limit. If your credit limit is low, you may only be able to move over a portion of your outstanding debt.
One thing to keep in mind: some credit cards charge a fee to transfer a balance. For example, if youre transferring $12,000 and theres a 5% fee to transfer, youll have to pay $600 in fees. By comparison, you wont be charged any fees to with a personal loan from Marcus. Learn more about .
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Will A Debt Consolidation Loan Hurt My Credit Score
Applying for a debt consolidation loan may temporarily dent your credit score because the lender will have to do a hard credit check before it can approve you. However, if you make your monthly loan payments on time and don’t rack up card balances again, a credit card consolidation loan can improve your credit score.
You can consolidate debt without hurting your credit. Personal loans for debt consolidation have several features that are less likely to damage your credit than revolving debt like credit cards. A personal loan is an installment loan with a fixed rate, fixed monthly payments and a fixed payoff date. This makes them easier to budget for and a cheaper form of credit than credit cards, which have variable interest rates, payments that change depending on the rate and balance and no clear payoff date.
The fact that many people take out installment loans to pay off their revolving loan balances says a lot about the potential credit benefits of debt consolidation loans.
Fixed Rates And Payment Schedule
Ulzheimer says that he favors personal loans for debt consolidation because the interest rate never changes and the loan has a fixed payoff date. With predictable payments, a debt consolidation loan can help with budgeting. If youre not managing a credit card absolutely perfectly, then you may end up paying more for a longer time than you would have with a personal loan.
Steve Repak, a North Carolina-based certified financial planner and author of 6 Week Money Challenge, says that he favors a balance transfer because its more flexible than a personal loan.
What if you lose your job or what if something comes up, some type of financial emergency where you cant make that $500 payment? Repak says. A 0 percent transfer might give you some flexibility even though it might cost you more. With a fixed payment, youre kind of stuck with that.
As youre deciding how to consolidate debt, look at your situation to see which option makes sense for you. If you need help with budgeting and want fixed payments, a personal loan is a good option. If youd prefer flexibility, a balance transfer credit card may be right for you.
Why its important: Paying your debt off depends on finding a repayment strategy that you can stick with. Consider whether youd rather have the certainty of fixed monthly payments with a personal loan or the flexibility of a balance transfer credit card.
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Make A Monthly Credit Review Date
Planning for the future isn’t exciting, but living in the future with your wealth will be.
Set aside one day a month to pull out your account statements, credit card statements, and credit report and take stock of your accounts. By reviewing your credit report, you make sure that no errors are cheating you out of credit score points. By looking at your accounts, you can detect and document trends that can help you build an updated budget and plan for the future. And when you check out your credit card statements, you can gain insight into how credit cards make money off of you and begin to flip the script to start earning rewards from them instead.
When A Personal Loan Isnt Right For Your Credit Card Debt
While refinancing credit card debt from a significant event or purchase can make sense for many people, there are certainly times that it doesnt, including:
If youre unsure whether you can commit to a set monthly payment. Unlike credit card payments, which can be made for any amount above your minimum, a personal loan locks in your interest rate by putting you on a set payment planfor the same dollar amount each month.
If you have less-than-stellar credit, as this can make it hard to get approved for a loan. Even if you are approved, the rate for a borrower with poor credit will be toward the higher end, meaning you may not save any money.
If youre using a personal loan so that you can continue to add additional purchases to your credit card. Consider a personal loan a one-time way of lowering your rate for a large sum that youre planning to pay off.
If youre planning to pay off your credit card debt soon, and in one lump sum in the near futureperhaps youre waiting for a bonus or tax refund, for example. In this case, its probably not worth going through the application, approval, and signing process to get a loan that youll end up paying off shortly.
Paying off credit card debt with a personal loan isnt for every situation, to be sure. But for financially responsible borrowers paying down debt from a one-time purchase, a loan can make a lot more sense both financially and in terms of the peace of mind a locked-in payment plan can bring.
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Which Is Right For You
If youre mostly looking to lower the interest rate youre paying on your current credit cards, credit card refinancing may be the better choice. Just be careful not to be too heavily focused on a 0 percent introductory interest rate offer. That only makes sense if the permanent interest rate on the new credit card is also substantially lower than what youre paying on your current credit cards.
