Credit Consolidation Options

One Problem - Multiple Solutions

If you have significant or overbearing credit card debt, you can turn to the option of consolidation in order to bolster your situation and help make paying off your debt easier. Credit card consolidation actually involves taking out a new loan - through various methods - and using that loan to pay off your credit card debt. When you are finished, you will have a single, lower-interest debt that is easier to manage, less expensive, and can be paid off more quickly than you would have paid off your credit cards alone.

Getting this one loan to be used in consolidating your credit card debt can be done in multiple ways and from multiple sources. You can get the loan either through a personal loan, a new credit card, or using the equity in your home to get a home equity loan or home equity line of credit.

• Home Equity Loan: If you own your own home, you may have equity in it (the home is worth more than you owe on it). This equity can be used to secure a new loan for you in the form of a '2nd mortgage'. Usually home equity loans come with fairly large available amounts if you have been paying faithfully on your home mortgage for a long time, or especially if your home is completely paid off. Once you secure a home equity loan, you will have a new mortgage to pay, but this secured loan will most likely have a significantly lower interest rate than all of the credit cards you were paying off before, saving you thousands of dollars over the long term.
• Home Equity Line of Credit: The home equity line of credit is similar to the home equity loan in that it uses the equity of your home to secure it, but rather than being a single lump-sum loan, the home equity line of credit is a revolving account like a credit card, which means that once you have paid off a certain amount on the loan, you are free to use that amount again as often as you like, assuming that you make the payments to the loan faithfully and on time.
• Personal Loan: A single personal loan from a bank, credit union or other lending institution is also used to secure debts much of the time. Usually this option is for those who do not own their home or do not have sufficient equity in their home to secure a loan.
• Credit Card: Using a credit card in order to pay off credit card debt may seem counter-intuitive, but it is not, as long as you are wise with your use of the credit cards that are paid off. In fact, no matter how you choose to consolidate your credit card debt, you would be well-served to place strict restrictions on yourself for how you will use credit card debt in the future. For more information, see our 'Avoiding Future Credit Card Problems' page to learn how to manage your cards in the future to avoid similar problems.