One strategy for consolidating debts involves transferring the debts from all credit cards to one zero-percent or low-interest credit card, reports the Consumer Financial Protection Bureau. Another strategy is to take out a debt consolidation loan or home equity loan from a credit union or bank. Alternatively, debtors can arrange a debt management plan through a credit counseling service.Continue Reading
Although transferring credit card debt to one card may result in an initial low interest rate, this rate usually only lasts for a limited time period, cautions the Consumer Financial Protection Bureau. Debtors also need to watch out for balance transfer fees and extra interest for new charges on the card. Debt consolidation loans may also have hidden fees and an initial low interest rate that goes up after a specified period of time. Home equity loans may carry low interest, but debtors put their homes at risk if they are unable to make the loan payments.
Transferring credit debt to one card may negatively impact credit scores by using up a significant percentage of available credit, points out MarketWatch. Those with credit card debt may not be able to get debt consolidation loans if their credit scores are low. However, debtors can arrange debt management plans with credit counseling services even if they have poor credit scores. Debtors should request free information about credit counseling services before providing any personal information, advises the Consumer Financial Protection Bureau. Before sending any money for debt consolidation to the credit counseling service, debtors should also confirm with their creditors that the creditors accept the consolidation plan.Learn more about Financial Planning