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How to consolidate credit card debt

There are multiple ways to consolidate your credit card debt and save money on interest charges.  Getty Images

If you're dealing with mounting credit card debt, you may be looking for ways to pay it off quickly. After all, today's high interest rate environment means your minimum payments are likely higher now than they have been in the past. But it's important to understand that when you make the minimum payments, most of your payment goes toward interest charges rather than the principal balance. 

The good news is that debt consolidation can make your debts more manageable. When you consolidate your credit card debts, you pay off multiple debts with a loan that typically has a lower interest rate. By doing so, you'll save money on interest while simplifying the payoff process. But how do you consolidate credit card debt? 

Find out how much money you could save with a debt relief service today

How to consolidate credit card debt

There are multiple ways to consolidate credit card debt. Some of the most popular debt consolidation options include: 

Use a debt relief service

Debt relief services typically negotiate lower interest rates or principal balances with your lenders. That means when you take advantage of these services, you could save money while expediting the repayment process. 

Many of the services offered by debt relief companies don't involve using a new loan to pay off high-interest debts. However, they can simplify the payoff process, as you typically send one monthly payment to your debt relief provider to address all of your credit card balances. 

With debt management, your provider uses your monthly payment to pay your lenders on your behalf. With debt forgiveness, the money from your monthly payments is held in a special-purpose savings account until there's enough saved up to pay out for credit card settlements. In either case, though, these options are for those who are struggling to make ends meet, so you won't need a strong credit score and application to qualify. 

And, it's worth noting that many of the same debt relief services also offer debt consolidation loan programs. However, these and other types of debt consolidation loans typically come with higher credit and borrower requirements, so they may not be an option for everyone who enrolls in a debt relief service. 

Use a debt relief service to help consolidate your debts now

Take out a debt consolidation loan

Debt consolidation loans are a type of loan used to pay off credit card debt. By using a debt consolidation loan to pay off multiple credit card debts, you're streamlining your payments into one loan with one monthly payment and a lower interest rate. 

However, these loans can be harder to qualify for, so they're usually best for those with good credit and a strong borrower profile. If your credit is damaged or your debt-to-income ratio is less than ideal, a debt consolidation loan may not come with a lower rate — or you may be declined altogether. 

But if you can meet the higher lending requirements, a debt consolidation loan may be worth considering. The average personal loan interest rate is 12.10% currently while the average credit card rate is 21.47%, so by using the right personal loan to consolidate your debt, the savings could be significant.  

Borrow from your home equity

If you own your home, your equity may be your key to paying off your credit card debt. The average homeowner currently has about $299,000 in home equity — about $193,000 of which is tappable. And, home equity loans usually come with competitive interest rates since they're secured by your home, which can make them a smart choice for debt consolidation. 

Right now, the average home equity loan rate is 8.59%. The average home equity line of credit (HELOC) rate is just slightly higher at 8.99%. These loans typically require a strong borrower profile for approval but can be a smart option if you want a lower interest rate and monthly payment. 

If you're approved for a home equity loan, you may be able to secure a loan term of up to 20 years (or up to 30 years with a HELOC). It's important to note, though, that the longer the loan term is, the more interest you'll pay over the life of the loan.  

The bottom line

There's more than one way to consolidate your high-interest credit card debt. If you're struggling to make your minimum payments or don't have the best borrowing qualifications, it could make sense to reach out to a debt relief company for help. If you have good credit and a strong borrower profile, you may want to consider using a debt consolidation loan or home equity loan to consolidate your credit card debt instead. No matter what, though, it's typically best to act quickly. The longer the credit card interest accrues, the higher your balances will be. 

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