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• Loan term: 3 months to 72 months

People who have huge Credit card balance, try to find the best way to consolidate credit card debt. There are several ways that you can consolidate credit card debt, but not all of them are necessarily beneficial. There is however one way to deal with credit cards, and it stands above the other strategies.

Why You Should Consolidate Credit Card Debt 

If you are in credit card debt, then you know that getting out of it is anything but easy. For that reason, let’s start by laying out the reasons why you should consolidate credit card debt. By having a clear idea as to why you should, there is a better chance that you’ll succeed.

For starters, credit cards typically have higher interest rates than other types of debt. This is because it is unsecured debt, and not the type of debt that is well protected (for the lenders) in bankruptcy proceedings.

But it doesn’t stop there. Credit cards also come with variable interest rates. That means that you can never be certain that the rate you start out with will be the one that you will have forever.

Sure, the initial rate may be reasonable, say 11.99%. But buried in the details of technical language in the credit card regulatory disclosures, are provisions that enable the lender to increase the interest rate under a number of circumstances.

Increase in Interest rates:

One such circumstance is when the general level of interest rates increases. For example, credit cards typically have an interest rate that is based on a margin plus an underlying index rate. It might be, say, a 9.99% margin plus the one year LIBOR rate of 3%. The combination of the two produces a starting rate of 12.99%. But should the LIBOR rate go to 6%, the rate on your card will increase to 15.99%.

Even more dramatic is the rate increase that can occur after just one or two late payments. A bank can raise your rate to 29.99% after so many late payments. When your interest rate goes that high, the monthly payment on your credit line will increase – mostly to cover the higher interest charge.

That gets to a second problem. Unlike installment loans, revolving loans are designed to keep you in debt. They do that by making sure most of your monthly payment goes to the payment of interest, rather than principal to reduce your loan balance. This is why, in many cases, people have the same credit cards outstanding for many, many years.

This is a trap, Which you need to get out.

Why Using a Credit Card to Consolidate Credit Card Debt is a No Go 

It is ironic that one of the most popular ways to consolidate credit card is with the use of another credit card. For example, you might consolidate credit cards that have a total outstanding balance of $10,000, on a single credit card that has a $10,000 credit limit.

This is usually a failed strategy. While you are reducing the number of open balances and monthly payments that you have, you are basically just moving your debt from one credit card to another.

That may feel good emotionally, but it will accomplish nothing real. That’s because the credit line that you’re using to consolidate credit card debt is subject to all of the same problems that we discussed above.

Still another complication: What if you don’t have a single credit line that is large enough to accommodate all of your open credit card balances? Since most credit card credit lines are good for only a few thousand dollars – $10,000 at best – they may not be high enough to cover all of your credit card debt.

Oh, and there’s one more problem – you usually have to have good or excellent credit in order to qualify for a credit card, particularly one with a large credit line.

Why Using Credit Card Balance Transfers Doesn’t Work   

This is actually nothing more a variation of the strategy of using one credit card to consolidate credit card debt. However, it is a lot slicker in the presentation, which is why it is also so popular.

Balance transfer offers are specifically an attempt by one credit card issuer to get you to transfer your existing credit card balances over to their card. They typically do this by offering you a 0% introductory rate. That rate may apply for anywhere from six months to one year or more. It is attractive because you may be paying double-digit interest rates on other cards that you owe money on. The 0% rate gives you a welcome break from high interest rate charges.

But there are major downsides to this arrangement. One is balance transfer fees. In connection with 0% introductory offers, banks will typically charge fees of between 3% and 5% on the amount of credit card debt that you consolidate.

Another is that the 0% introductory rate will eventually end. Once it does, you’ll go to the real rate that the bank charges. That could be even higher than the rates you’re paying on the credit cards you consolidated.

From that point on, the balance transfer credit card will simply turn into just another credit card with an outstanding balance – and a very large one at that.

Mission not accomplished!

Why Using Secured Loans should be avoided 

Still another option is using a secured loan. This is giving your savings account or a certificate of deposit as collateral for the loan.

While this can be a workable strategy to consolidate credit card debt, it’s limited by the amount of collateral that you have to secure the loan. If your savings are not sufficient to pay off your credit card debts, then this will be a partial solution. In addition, you will lose access to your pledged savings until the loan is fully paid. That will be like having no savings at all.

Another strategy, and more popular one, is taking a home equity line of credit to consolidate credit card debt. For the most part, a home equity line of credit is a revolving line of credit that is secured by your home.

That presents several potential problems. The most obvious is that you must be homeowner in order to get the loan. You must also have sufficient equity in your home to qualify for the loan. For example, a bank may provide a home equity loan for up to 90% of the value of your home.

But if you have already taken first mortgage equal to 85% of the home value, then you get 5% only. That may not be enough for what you are looking to do.

In order to consolidate credit card debt with a home equity line, you are putting your home at risk.

Now let’s get to the good part…

The Best Solution: Using a Best Personal Loan to Consolidate Credit Card Debt

Considering all the problems, an Unsecured Personal Loan is probably the best solution to consolidate credit card debt.

An unsecured personal loan has some similarities to credit cards. One is that you are not required to have any collateral to qualify for the loan. Another is that you can generally use the loan proceeds for any purpose necessary, including a debt consolidation loan.

But that’s where the similarities end. For one thing, you do not need to have good or excellent credit to get an unsecured personal loan. You can even get an unsecured personal loan for bad credit, with a fair or poor credit rating.

But perhaps the biggest advantage to an unsecured personal loan is that it’s set up as an installment loan. That means that you have a fixed interest rate and fixed monthly payments throughout the term of the loan. And the term is generally limited to not more than five years. That means once the term is up, the loan will be fully paid,  includes all of the credit card debt.

An unsecured personal loan is the best way to consolidate credit card debt in a safe and predictable way. It allows you to get out of debt, rather than keeping you buried under “easy” revolving terms forever.

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