Are you overwhelmed by your credit cards? If you feel like you cannot keep up, one effective way to ease the stress is to consider credit consolidation. There are several strategies to accomplish credit consolidation, and there are many benefits that arise from the choice of credit consolidation.
First, what does credit consolidation mean? Credit consolidation can take many forms, and means different things to different financial advisors, so we will go through each one in turn. One form of credit consolidation is to take out a personal loan and use the proceeds to pay down your existing credit cards. Another form of credit consolidation is to do a balance transfer; this involves applying for a new credit card which will allow you to transfer all the balances from your existing cards onto this one new card. Both of these means of credit consolidation involve opening an additional unsecured credit account.
Another way to pursue credit consolidation, available for homeowners, is to look into borrowing against your home equity. One way to do this is to take out a Home Equity Line of Credit (HELOC), which is a credit line against the equity in your home. You would then use the proceeds of this new loan to pay down all of your credit cards. Another way to take advantage of the equity appreciation in your home for credit consolidation is to refinance your existing mortgage. As part of this refinance, you would use some of the proceeds to pay off your existing credit cards. This type of refinance credit consolidation is often called a debt consolidation refinance – you are consolidating both your old mortgage and your existing credit cards into one new mortgage.
Now that you understand what the different forms of credit consolidation are, it is important to understand the benefits of credit consolidation.