Credit card balances jumped to a record high of $986 billion in the fourth quarter of 2022 according to the Federal Reserve Bank of New York Quarterly Report released this month. Consolidating debt to lower interest rates can be a strategically smart move to pay down high-rate debt that has gotten out of control. In simple terms, debt consolidation is a method of consolidating various debts, such as credit card balances and high-rate loan debt, into one payment. When done calculatedly with a specific focus on finding a lower interest rate, it can help you to save on interest and pay down debt faster.
Two debt consolidation strategies to help you lower your rates
1 Consolidate debt to a 0% APR* Credit Card
The Federal Reserve Bank of New York report mentioned above also found that credit card delinquencies were on the rise from the previous quarter. This is a worrying sign with balances at record highs. Applying for an introductory 0% or other low APR balance transfer credit card is one way you can lower your interest rate. Balance transfer cards enable you to move debt from one credit card to another, typically with a low introductory rate offer. A bit of shopping around can help you find a low-rate balance transfer card to fit your needs.
A great example is Benchmark Federal Credit Union’s 0% APR* on purchases and balance transfers for up to 12 months*. Benchmark’s VISA Balance Transfer Card gives you a full 12 months to work on paying down your balance before converting to the rate a member qualifies for at card opening. As with other balance transfer cards, it’s important to pay your balance off or down significantly before the introductory period ends. This strategy of consolidating and paying off quickly can help you save a considerable amount on interest over time.
2 Consolidate high-rate debt with a low-rate HELOC
A Home Equity Line of Credit (HELOC) allows you to utilize the equity built in your home to access cash to consolidate debt or for any need. The Federal Reserve Bank of NY showed revolving home equity line credit balances were also up in Qtr. 4 2022. Consumers are realizing the value of a HELOC for debt consolidation. The average interest rate on a HELOC is typically much lower than that of a credit card. A good illustration is Benchmark FCUs current HELOC promotion, which provides qualified borrowers with a special 6-month introductory rate of 3.99% APR**, as well as a $100 cash bonus.**
While a HELOC can be a viable solution for homeowners looking to refinance high-interest debts, it’s not the right answer for everyone. Using a HELOC may enable you to lower your interest rate and also your monthly payment. The rate is lower because your home is used as collateral for the loan. If you default on your HELOC, your lender can foreclose on your home. This should be an important factor when considering a HELOC for consolidating debt.
Consolidate debt to a lower interest rate and save!
In conclusion, the biggest advantage of debt consolidation is paying off your debt at a lower interest rate, which saves you money. Consolidating to a lower interest rate can also help you get out of debt faster by enabling you to concentrate fully on paying down the principal balance. Unless a lender can offer you a lower rate than your current debt, debt consolidation may not be the best idea for you. Before consolidating, be sure the new monthly payment will fit comfortably into your budget.
Read more helpful tips like this in our blog “7 Credit Card Mistakes to Avoid.”
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*APR = Annual Percentage Rate. Rate subject to change & based on an individual’s credit history. 0% Intro Rate is valid for purchases & balance transfer from other institutions for 365 days from card opening. The 0% rate will be in effect for up to 12 months from card opening & after 12 months the rate on all unpaid balances will convert to the rate member qualified for at card opening. 0% APR promotional rate is only valid on new VISA® Platinum Cards & subject to expire without prior notice.
**APR = Annual Percentage Rate. Rates are for qualified borrowers and are subject to change without notice. Introductory rate of 3.99% APR is for the first 6 months. At the end of the introductory term, the rate reverts to rate according to credit score at time of application: as low as Wall Street Journal Prime Rate – .51% for 80% LTV** and Wall Street Journal Prime Rate – .26% for 81-90% LTV**. Floor rate is 3.99% APR. $100 application fee for loans under $25,000. Early termination fee of $250 if HELOC is paid off & closed in the first 12 months. $100 cash bonus valid for new & refinanced HELOCs, bonus funds will be deposited into member’s account within 30 days from loan closing, & subject to be discontinued without prior notice. Bonuses paid will generate a 1099 INT at year end.