How to consolidate credit card debt?

Do you have a bad credit card habit and wonder, "how can I consolidate my debts?" We've got all the tips and tools for credit card consolidation.

Let's get to the following commonly asked questions:

• What is credit card consolidation?
• How does credit card consolidation work?
• How do I consolidate credit card debt?
• What other options are there?

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Q1. What is credit card consolidation?

Credit card consolidation means paying off multiple credit cards into one manageable balance. If you find yourself in a financial situation where you're struggling to pay off all your card balances, you might consider debt consolidation loans.

There are pros and cons to every consolidation option:

Pros: 

• Pay off your credit card balances.
• Simplify payments.
• Lower interest rate.

Cons:

• You might find closing credit card accounts affects your credit score.
• Potential annual fees.

Without debt hanging over your shoulder, you're financially free to put your money towards your super and investing.

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Q2. How does credit card consolidation work?

If you choose to consolidate debt, it's generally straightforward. 

Check your credit accounts and gather all the debts and loan amounts into one payment. For example, you may pay off accounts reaching their credit limit, a line of credit, and a car loan in one consolidated loan. With one monthly repayment, it's easier to manage. Set up an automated payment with internet banking and say goodbye to your money worries.

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Q3. How do I consolidate credit card debt?

If you're in urgent need of credit repair, consolidate your debts with the following strategies.

Personal loans

Speak to a lender with an Australian credit licence about an unsecured personal loan for debt consolidation. Use a personal loan calculator to work out your repayment plan.

Note: Remember your credit history determines your chances of getting a low rate. If you struggle to budget, a fixed rate might help, and you should also check comparison rates.

Debt consolidation programs

A debt consolidation program helps borrowers construct a loan to consolidate debt. The program pays the creditors directly, negotiating lower interest rates and fees. You'll work with financial advisers to improve your financial situation.

Peer-to-peer lending (P2P)

P2P lending is another way to get your debt under control. Whether a friend helps pay your bills or offers you a flexible loan, it's an option when you're in financial hardship. Use online banking to set up a monthly money transfer to meet agreed loan repayments.

Balance transfer credit card

A credit card balance transfer is the same as credit card refinancing. Essentially, you transfer credit cards to an interest-free card for 12 to 18 months. You will need an excellent credit score to qualify for a balance transfer account. 

Important: Remember you might have to pay an annual fee, so calculate whether the balance transfer is cheaper than repaying individual credit cards.

Debt management plan

Financial counsellors run debt management plans, rolling several debts into one debt agreement. These are a good option for people who don't qualify for other solutions because of a low credit score.

Your counsellor will work with you to create monthly payments that pay off your debt within three to five years. Once you've rid yourself of your debt, you're free to invest in your super funds, buy shares or add money to your savings account to prevent such debt again.

Important: Avoid payday loans unless there is no other alternative.

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Q4. What other options are there?

Whether you're consolidating credit card debt yourself or organising your business banking, there are different solutions to pay off personal and business credit cards.

Note: Once you pay off your debt, try replacing one of your credit accounts with debit cards to avoid getting back into the same situation.

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Talk to your provider

If your bank account is struggling to keep up with your debts, speak to your credit provider. If you have a home loan, transaction accounts, and savings accounts with the same provider, they may offer rewards credit cards to help save money. If you're considering taking out new saving accounts or loans with your provider, check they're manageable with loan calculators.

Consider switching home loans

If your existing debt is overwhelming, consider refinancing your home loan for better rates and lower fees. Refinancing to a longer loan term might cost more overall but will lower your home equity loan's monthly loan repayment amounts. Use a mortgage calculator to find the best solution for you.

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In summary

Improving your credit card debt will mean greater cash flow and better credit scoring, so seek financial advice about whether taking out a loan for debt consolidation is the right solution for you. Finally, ensure that your debt consolidation loan will be cheaper than paying your credit card debts individually.

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‍Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.