Consolidating debt into
They may also utilize an existing credit card's balance transfer feature (especially if it offers a special promotion on the transaction).
Home equity loans or home equity lines of credit (HELOC) are another form of consolidation sought by some people.
There are several ways consumers can lump debts into a single payment.
One method is to consolidate all their credit card payments into one, new credit card—which can be a good idea if the card charges little or no interest for a period.
One benefit is that this loan won’t show up on your credit report.
But the drawbacks are significant: If you can’t repay, you’ll owe a hefty penalty plus taxes on the unpaid balance, and you may be left struggling with more debt.
» MORE: The good and bad of home equity loans Pros: Back to top If you have an employer-sponsored retirement account, it’s not advisable to take a loan from it, since doing so can significantly impact your retirement.
Online lenders typically let you pre-qualify for a debt consolidation loan without affecting your credit score.
You’ll need a good to excellent credit score — above 690 — to qualify for most cards.
Make a budget to pay off your debt by the end of the introductory period, because any remaining balance after that time will be subject to a regular credit card interest rate.
In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable payoff terms.
Favorable payoff terms include a lower interest rate, lower monthly payment or both.
That means you’ll need to pay more than the minimum payment due to reduce the principal and make a dent in your overall debt.