The best debt consolidation credit cards usually have 0% introductory APRs, $0 annual fees, low balance transfer fees, and high enough credit limits to accommodate balance transfers from numerous accounts. When comparing credit cards for debt consolidation, your goal should be to find an offer that will reduce the total cost of your debt and shorten your timeline to debt freedom.
In general, the best debt consolidation credit cards are those with the best combination of 0% APRs, low fees, and high credit limits. You can run the numbers on your options with our balance transfer calculator.
Bear in mind that a lot depends on your credit standing. Usually, there aren’t too many debt consolidation credit cards for people with less-than-good credit.
The best debt consolidation credit card is U.S. Bank Visa® Platinum Card because it offers an introductory APR of 0% for 20 months on balance transfers and a $0 annual fee. There’s plenty of time to pay a high balance off.
Some other cards can also be good choices for balance transfers, depending on your situation. For example, Citi Simplicity® Card - No Late Fees Ever has an intro APR of 0% for 18 months on balance transfers to pay the consolidated debts off.
The best way to consolidate debt is to take out a new loan or credit card that has a lower APR than all of the original debts and then use it to pay off the original debts. This turns multiple monthly payments into one and reduces the cost of the total amount owed, allowing the borrower to get debt-free sooner. The best debt consolidation options will not charge any fees to complete this move, either.… read full answer
That said, there are a number of different types of loans and lines of credit that people can use for debt consolidation, including personal loans, home equity loans, home equity lines of credit (HELOCs), and credit cards. None of them is “best” overall for everybody. Rather, each can be the best option in different situations.
Best Ways to Consolidate Debt:
Credit card: Doing a balance transfer to a credit card is the best way to consolidate debt when you owe a relatively small amount and will be able to pay it off within a year or two. Balance transfer credit cards typically have credit limits of $500+, and introductory 0% APRs on balance transfers tend to last for 1 to 2 years.
Home equity loan: A home equity loan is the best way to consolidate debt if you’re a homeowner who owes a lot and needs a long time to pay it off. It’s also a good choice if you want to score the lowest APRs possible for multiple years. Home equity loans are much cheaper than personal loans on average, but they require the borrower’s house as collateral. So you have to be confident in your ability to repay a home equity loan.
Home equity line of credit (HELOC): A HELOC is the best way to consolidate debt for people who want to borrow multiple times without applying for a new loan. HELOCs have a draw period during which the user can borrow, up to their available credit, at any time. HELOCs also require a house as collateral, which means there’s a lot of risk for borrowers.
Personal loan: A personal loan is the best way to consolidate debt for people who can’t/won’t use a home as collateral but still need more funding than a credit card might provide. Plus, personal loan APRs are often lower than the regular APRs on credit cards, so they’re also good for balances that can’t be repaid quickly. Personal loans usually take only about a week to get, too, so you can consolidate sooner than with a home equity loan or HELOC.
Best Way to Consolidate Debt Without Hurting Your Credit
The only way to consolidate debt without any credit score damage is having a friend or family member pay it off for you, then owing the debt to that person. That said, debt consolidation doesn’t usually affect your credit much.
Applying for a loan or line of credit should only drop your credit score by 5 to 10 points. And even if debt consolidation hurts your credit in the short term, it can lead to large long-term gains. You’ll be able to reduce your debt load more quickly and build up a good payment history, both of which will help your score.
Other Ways to Consolidate Debt
There are a few other ways to consolidate debt, but they’re not ideal. The first is to use a debt consolidation program. With this option, you don’t take out a loan. Instead, you make one payment per month to a company, which distributes the funds to your creditors. The company also negotiates on your behalf to try to get lower rates. But you’ll have to pay fees to the company, and you may suffer credit score damage because the program might not negotiate with creditors until you have missed a few payments.
Another option is to borrow from your retirement account. But you’ll end up having to pay interest into your account to make up for the time the money wasn’t invested. In addition, you’ll need to pay the loan back in 5 years or face an early withdrawal penalty. The timeline moves up if you lose your job, too. In that case, you’d need to pay the money back by the tax day for the year in which you lost your job.
Ultimately, the best way to consolidate debt for most people will be a personal loan because it provides decent funding amounts and APRs without requiring any collateral. To check your chances of getting approved for a personal loan, along with what rates you might qualify for, use WalletHub’s free pre-qualification tool.
The biggest risks associated with debt consolidation include credit score damage, fees, the potential to not receive low enough rates, and the possibility of losing any collateral you put up. Another danger of debt consolidation is winding up with more debt than you start with, if you’re not careful.
While debt consolidation can often save borrowers money and help them pay off their debts faster, it’s important to consider all of the potential dangers before consolidating.… read full answer
Top Debt Consolidation Risks:
Credit score damage: If you apply for a debt consolidation loan or credit card, your score will drop 5-10 points from the hard inquiry. But consolidating debt can help improve your score in the long run if you get rid of your debt sooner.
Good rates and large dollar amounts not guaranteed: Depending on your credit, income and other factors, you may not be able to qualify for a loan or credit card with lower rates than the APRs on your existing debts. You might not be able to get enough funding to pay off all your existing balances, either.
Fees: Debt consolidation loans may charge origination fees of up to 8% of the loan amount. Balance transfer credit cards may charge 3% to 5% of each transfer.
Possibility of losing collateral: If you consolidate with a secured loan, and you are unable to pay that loan back, the lender will take possession of the collateral that you put up to open the loan.
High credit utilization: If you consolidate using a credit card or other line of credit, your credit utilization ratio may increase. That will hurt your credit score. But loans do not count toward credit utilization, since they are not revolving credit accounts.
It’s up to you to decide whether the dangers of debt consolidation are worth the potential benefits. Check out WalletHub’s guide on debt consolidation to learn even more about the process.
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