CHARLOTTE, N.C. — Credit card debt is about to get even more expensive as the Federal Reserve raises interest rates.
However, there are ways to consolidate debt and lower the interest amount that needs to be paid. Consolidating debt is a way to pay off the debt that is spread over multiple credit cards by using only one loan or one credit card. It can help save money on interest payments if the new balance or loan has a lower interest rate.
David Zapata has been the branch manager at Latino Community Credit Union for the better part of a decade. Zapata said if a person has hefty credit card debt, they could be better off applying for a personal loan instead.
People can get a personal loan from an online lender, a credit union or a traditional bank.
"If you do get approved, normally what financial institutions will do is they will send the payments to all those different financial institutions to cover the debts on those credit cards,” Zapata explained. “That will help you as well to better manage your finances because you don’t have different payments at different financial institutions.”
There are a few ways to take to get this done. First, check out the interest rates on personal loans by visiting a site like Bankrate. Personal loans have fixed interest rates that are often lower than credit cards which can stabilize the monthly payment. Interest can be as low as just under 6% and as high as 36%. It's important to check the rates before taking out a loan.
Another way to lower those rates even further is to wrap personal debt into an ongoing auto loan or home loan, using that as collateral to get a lower interest rate. A benefit to this is credit inquiries can require a hard inquiry, which impacts overall credit scores. However, a personal consolidation loan can be pre-qualified online without hitting credit scores.
And those who have paid-off cars can do something else. If the value of the car is higher than the loan that is desired, it can be used as collateral, too.
“What we do is we ask them to bring the title,” Zapata began. “We do an inspection of the vehicle, just to make sure the vehicle is eligible for this type of loan, and what we do is a refinance or pretty much a vehicle loan."
And when it comes to using an auto equity loan to consolidate, a borrower can leverage their vehicle's equity, however, the value of the home has to outweigh the cost of the desired personal loan.
A reminder though these options are subject to factors like credit usage, how often bills are paid on time and for some, credit scores.
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