How to Find the Best Credit Card Consolidation Loan
10 MIN READ
Published April 06, 2023 | Updated October 02, 2023
If you are overwhelmed with managing multiple credit card payments, it may be time to consider a credit card consolidation loan to pay off your debt.
If you are like millions of Americans with high-interest credit cards and overwhelming outstanding balances, you may want to look into debt relief options to get your debt under control.
Credit card debt consolidation loans can help you pay off your debt sooner and roll multiple high-interest credit cards into one.
When comparing your options, look for flexible payment terms and lower interest rates.
The right loan can simplify your life by combining all your debts into a single monthly payment while allowing you to save thousands of dollars in interest charges.
What is a Credit Card Consolidation Loan?
A credit card consolidation loan will combine multiple credit cards into a fixed monthly payment. This is a good solution when the interest rate on the new loan is lower than the interest rates of your credit cards.
The lower fixed rates will allow you to pay off credit card debt faster as you’ll be able to save more money on interest.
Like many other Americans, Generation X had a credit card debt of $7,236 in 2021 and had an average of 3.3 credit cards. A consolidation loan is an effective way to pay off such large balances faster.
How Does Credit Card Consolidation Work?
A personal loan for credit card consolidation involves getting a new loan to pay off your existing debts.
Once you apply for a new loan and prove your creditworthiness, you can use those funds to pay off the outstanding credit card balances. In some cases, the lender may send the funds directly to your credit card issuer to simplify the process.
Once this is done, you’ll only be left with a single payment each month instead of multiple debt payments. This new loan can help you save money and time.
You will have a fixed interest rate and monthly payments, so you don’t have to keep track of due dates on multiple credit cards.
Signs That You Should Consider a Credit Card Consolidation Loan
A low-interest credit card consolidation may be right for you if:
- You carry high-interest debt. If you can qualify for lower loan rates, you can pay off your debt at a lower cost.
- You have fair credit to qualify for a credit card consolidation loan. Higher scores will allow you to get the best rates.
- You have high balances that you will not be able to pay off in the short term. Generally, a debt consolidation loan is best for those with over $5,000 in credit card debt.
- You have the ability to make payments towards the loan each month.
- You are willing to commit to the payment program, create a budget, and modify your spending habits. This will allow you to avoid debt in the future.
Will a Credit Card Consolidation Loan Impact Your Credit?
Personal loans for credit card consolidation can impact your credit in many ways.
When you apply for a personal loan, the financial institution will run a hard credit check. This will temporarily affect your credit score.
Any impact from debt consolidation on your credit report is temporary, and if you make consistent payments, it will help you rebuild your credit.
Paying off credit card debt will improve your credit utilization ratio and your credit score.
The lower interest rate and streamlined loan payments will also allow you to manage your payments better and pay off debt faster. This translates into lower loan balances and will have a positive impact on your credit.
How to Get a Consolidation Loan?
The exact process of getting a credit card consolidation loan will vary by lender, but the general steps are listed below:
Many financial institutions will allow you to prequalify without taking a hit on your credit score. This will provide you with a better idea about the terms, minimum loan amount, and APR range you can qualify for before applying.
If you have excellent credit, you may be able to qualify for lower rates.
Compare Your Options
Once you have prequalified, compare the loan options to see which one offers the best repayment terms and interest rates for your credit profile.
Depending on your preferences, you can select a lender that offers a convenient repayment process, no prepayment penalties, lower rates, or longer loan repayment terms.
Send in Your Application
Gather the documents required for sending in your loan application. In most cases, you will need to submit qualifying documents that prove your income and employment records, as well as your bank account information.
If you are applying with a co-borrower, you’ll also need to submit their documents. Many lenders also offer an online application process option.
Wait for the Approval
Most financial institutions and credit unions offer loan approvals within one business day after doing a credit inquiry, with funding on the next business day.
In some cases, the approval may take longer, and you may be asked to submit additional documents if necessary.
Pay Off Your Credit Cards
Once you receive the loan funds, use them to pay off the outstanding balances on your credit cards. Some lenders may transfer the funds directly to the credit card issuer on your behalf, which is an added benefit for your loan purpose.
Set up autopay and continue to make payments towards your new loan. Once you have paid your cards off, be sure not to use them again to avoid any additional debt accumulation. A good idea is to cut up these old cards, or lock them away until you are fully confident in your relationship with spending and money management.
Tips to Find the Best Credit Card Consolidation Loans
When comparing your loan offers, compare these factors to find the best credit card consolidation loans:
The annual percentage rates of the loan include the interest rates and all fees, so it is the true annual cost. The rates you qualify for will depend on your debt-to-income rate, income, credit score, and other factors. Choose a loan with the lowest rate.
Many lenders will charge loan origination fees for processing the loan. This is a one-time fee that will be added to your loan balance or deducted from the loan proceeds. Choose an option that has no origination fees or one that has the lowest fees to keep your costs down.
Many lenders offer additional perks such as hardship programs for borrowers, credit score monitoring, flexible loan term, and direct payment to credit card companies. Choose a loan that comes with features that matter to you the most.
4 Other Options to Tackle Credit Card Debt
There are more than one ways to tackle credit card debt. Consider the alternatives listed here if credit card consolidation loans are not right for you.
1. Debt Payoff Strategies
If you do not have a lot of debt, use a debt repayments strategy like debt avalanche or debt snowball.
With debt avalanche, you start by paying off the credit card with the highest interest rate first. Once you pay that off, you can focus on the credit card with the second-highest interest rate.
This strategy allows you to save more on interest charges as you focus your efforts on where it matters the most.
The debt snowball method allows you to bank on momentum and motivation as you start by paying off your smallest credit card balance first before moving on to the next one. With this strategy, you can feel good about paying off each debt faster than with the avalanche method. Don’t underestimate the power of this accomplishment - it will keep you engaged and wanting to move to the next debt and stay focused on becoming debt-free.
Both strategies work and can boost your debt repayment efforts.
2. 0% Balance Transfer Credit Cards
You can also consolidate your credit cards with a 0% balance transfer credit card. Many credit card companies offer a 0% interest rate for a limited time.
You can transfer all your balances to the new credit card and pay off the balance during this time period. Balance transfer fees of 3% to 5% will be applicable in most cases.
It is also important to note that if you do not manage to pay off the entire balance within that time frame, interest rates will be applicable.
If you have a good credit history, you may be able to qualify for a 0% balance transfer credit card.
3. Debt Management
If refinancing is not an option for you, there are many debt management plans offered by many nonprofit and for-profit credit counseling companies.
You can enroll in unsecured debts such as credit cards in the program. Your counselor will negotiate with your lenders to lower interest rates and waive fees and penalties.
A debt management plan offers you a repayment plan that will be easier to stick to. In many cases, you will be required to close lines of credit when you enroll in the program.
4. Debt Settlement
If you have over $10K in credit card debt, you may need to focus on serious debt relief measures like debt settlement.
A reputed debt relief company can negotiate with your lenders on your behalf to settle your account for less than what you owe.
Debt settlement is also a good solution for those with bad credit history and those who have accounts in collections, missed payments, and late fees.
If you do not have the means to pay off your entire credit card debt, consider this option. A settlement can help you save up to 50% of your total debt before fees.
Credit card debt can quickly snowball and become a dark shadow in your life. Use the right debt relief program at the earliest to pay off your debt and start with a clean slate.
TurboDebt has helped thousands of clients pay off their debts and take their first steps toward a debt-free life.
Our knowledgeable debt relief professionals can provide consultations, counseling, and strategic planning services to help you find the right debt solution for your financial situation.