“Best” is one of those words with different meanings for different people. What might be best for you could well be a problem for others. With that in mind, we’re going to focus on how to find one of the best credit card consolidation loans for your particular circumstances.
That means we first must help you figure out what your circumstances are.
What’s Your Credit Score?
This becomes a consideration any time we’re talking about getting a loan. Your ability to qualify depends heavily upon your credit score. Moreover, even if you do have a score high enough to qualify, but lower than ideal, you're going to have to make larger interest payments. This could make consolidation a bad idea for you. After all, the whole point is to reduce the amount you’ll pay overall to resolve your debts.
You can get free copies of all three of your credit reports at AnnualCreditReport.com. Review them for errors such as debts you’ve paid off that are still listed as having balances. You’ll also want to look for accounts you don’t recognize. Pay off any small debts listed and make every effort to bring all of your accounts current before applying for a loan. Clearing up discrepancies will raise your credit score. Speaking of which, you can get your credit score from any of the three reporting bureaus — Experian, Equifax and Transunion — for a fee at their websites.
Create a List of the Debts You Want to Consolidate
These can be retailer charge cards, regular credit cards, payday loans, and many other unsecured high interest debts you have. Total up the monthly payments and make note of the interest rates attached to each account.
You’ll need the amount of your consolidation loan to at least cover the total, and you’ll want to make sure the interest rate you get is lower than the average rate you’re currently paying. A consolidation calculator can help you figure this out more easily. Sites offering the best credit card consolidation loans typically offer this service.
Types of Consolidation Loans
As we mentioned above, the higher your credit score, the better fixed you are to get one of the best consolidation loans. This is because the least costly ways to consolidate include personal loans, balance transfer credit cards, and home equity instruments such as cash-out refinancing or home equity lines of credit.
A balance transfer credit card can be the least costly method, depending on the amount of outstanding credit card debt you’re carrying. Most of these cards come with a super low or a zero percent interest rate over the course of an introductory period. However, you have to be careful to transfer only what you can pay in full within that window. Otherwise you’ll see a significant rate jump when that deal expires. In some cases, you might also have to pay accrued interest on the entire balance going all the way back to when you accepted the deal.
Personal loans require you to have a stellar credit rating because they’re secured only by your promise to pay. These loans are reserved for people who have demonstrated a strong sense of responsibility when it comes to financial matters.
Home equity instruments can be had a bit more easily because they’re secured by an interest in your residence. In other words, you’ll promise to liquidate your home to pay off the loan should you be forced to default. Experts argue against going this route because it entails trading unsecured credit card debt for a secured loan from which you cannot simply walk away.
Where to Find Consolidation Loans
A number of online lenders operate in this space. What’s more, they are typically open to working with people regardless of their credit scores (more or less). Again, though: you’ll pay higher interest rates with lower credit scores.
Banks and credit unions can be good sources of consolidation loans as well — especially when you have accounts with these institutions. The best credit card consolidation loans offer low interest rates with favorable terms and minimal fees. Financial education, flexible payment options, and the reporting of positive activity to credit bureaus are worthwhile attributes to seek as well.