Credit card debt consolidation involves taking out a single loan to consolidate all your credit card debts. This means that you now only have to make a single payment at a single deadline for all your credit card debts. Many people have difficulties remembering the deadlines of their credit cards and fail to keep up with their payment as a result.
There is no fixed repayment period for credit cards. Credit card balances can be rolled over from one month to another as long as you make the minimum repayment. It is the reason why most people take decades to clear off their entire credit card debt. There are two main types of debt consolidation loans including secured and unsecured.
Secured loans will require you to use your asset as collateral. It can be risky to use your asset as collateral because you don’t know if you are going to lose your job and not have enough money to pay for the loan. This can result in repossession of the asset. Using an unsecured loan to consolidate your credit card debts is always the best because it will only put your credit in risk.
Unsecured loans for the purpose of consolidating your credit card debts can be obtained via P2P lenders online. Unsecured personal loans used for consolidating the credit card debts usually have higher interest rates than a home equity loan. With P2P loans, there is a fixed repayment period of 2 – 10 years. P2P loans usually have lower interest rates compared to credit card APR interest rates.
The interest rate can be fixed throughout the loan term unlike balance transfer card where the 0% interest offer only lasts for a certain period of time. Choosing a fixed rate P2P loan makes it easier for you to plan for the repayment even though it may be higher than a variable rate loan. If the loan has a variable rate, the interest rate can fluctuate up and down.
Balance credit cards often have a short zero interest period that lasts for less than 2 years. If you can’t pay back your credit card debts in 2 years, the P2P loan will be the best option. Once you got approved for the debt consolidation loan, make sure you are committed to making the repayment on time. You should also stop using your credit cards to avoid wrecking further credit card debts.
When shopping for a P2P or online loan, you should check the interest rates and fees to make sure that it will help you to save money if you take out the loan to consolidate your credit card debts. Some lenders will charge more fees while others will charge lesser fees so it is important to perform comparison.