How to consolidate your credit card debt and save money

Credit cards offer an excellent way to purchase daily essentials, electronics and more as well as address emergencies. Using them, you can boost your savings through rewards, discounts and cashback. However, credit cards are a credit facility and require you to make timely payments. 

Missing paying your bill by the due date, you not only pay a penalty but also accumulate interest on the balance. Credit card interest is very high compared to most other loans. This is why credit card debts can be some of your most expensive debts. 

As your credit card debt accumulates on multiple credit cards, you may be caught in a debt trap. This makes it very challenging for you to repay your credit card debt. Moreover, delayed payments can affect your creditworthiness and bring your credit score down. 

A simple way to tackle this is to consolidate credit card debt. This option, also known as credit card refinancing, is gaining popularity as it eases the stress of repayment. Read on to know more. 

How to consolidate credit card debt?

When you consolidate your credit card debt, you take on a new loan, such as a personal loan, of an amount that covers all your existing credit card overdue amounts. Say you have 3 credit cards and have overdue payments on all 3:

Credit Card A: ₹10,000
Credit Card B: ₹20,000
Credit Card C: ₹20,000

Each of these cards may have a different annual interest rate of 35-42% p.a. and may come with different due dates. By merging them into one, you can combine your existing debts totalling ₹50,000 into one personal loan. 

In comparison to credit cards, personal loans offer you a lower rate of interest. You just need to pay a single monthly instalment for all your dues instead of making multiple monthly payments at different times. 

While you can also opt for a balance transfer facility or get a loan from friends or family to address your credit card debt, these methods come with certain challenges. 

• In the first case, you can transfer your overdue credit card balance to another credit card, but this requires a high limit, which you may not have. Additionally, doing a balance transfer requires you to pay off the balance within the free period, after which high-interest charges will apply. 
• In the second case, taking a loan from friends and family can cause stress due to the possibility of rifts caused by lack of clear terms and unmatched expectations. 

Thus, credit card debt consolidation via a personal loan is a hassle-free way to proceed. 

Key benefits of credit card refinancing

Streamlines repayment through one instalment per month

The top reason behind the popularity of taking a credit card debt consolidation loan is that it simplifies repayment. By paying just a single EMI, you can focus on meeting the deadline diligently while correcting your spending habits. 

Helps improve your credit score

Your credit score increases when your new loan helps you to fully repay your credit card debt. It decreases slightly when the lender runs a hard inquiry before approving your loan application and also reduces a little when you take on a new loan. However, when you are regular with repayments on your debt consolidation loan, you can build up your credit score once again. 

Reduces repayment costs with attractive interest rates

In comparison to interest rates applicable to credit card debts, interest rates on personal loans for debt consolidation are more pocket friendly. This allows you to clear your debt more affordably. 

Facilitates quicker repayment

With credit card debts accumulating more and more interest on unpaid dues over time, you can get caught in a vicious cycle of debt. This can take a long time to steer clear of. When you consolidate credit card debt, you can eliminate debt much easier and much faster as it is cheaper to manage. 

As you can see, credit card refinancing can be an ideal move for you if you have multiple credit card debts. However, before you do so, check the personal loan processing fee, interest rate and other charges to ensure you are saving money in the long run.

At Fibe, we offer instant funds without any hidden charges. You can get an instant personal loan of up to ₹5 lacs with flexible repayment options in just 2 minutes. There are no restrictions on use, so you can use the funds to consolidate your credit card debts with ease. Download our instant loan app or log in to our website to get the funding you need without any hassles.

Frequently Asked Questions

Does credit card consolidation hurt your credit score?

Yes, your credit score will decrease slightly when you opt for a new debt consolidation loan to pay off multiple credit card debts. However, your score will improve when you repay the loan on time and reduce your overall debt. 

Can I use a credit card to consolidate debt?

Yes, you can use a balance transfer credit card to do this in some cases. However, it comes with its challenges, such as requiring you to have a high credit card limit and giving you less time to repay as compared to a debt consolidation loan. 

Can credit card debt be eliminated?

Yes, you can get rid of credit card debt by taking the right steps. One way to do this is to consolidate your credit card debt into one loan, which you can repay as per your chosen tenure. 

How can I settle my old credit card debt in India?

You can settle your credit card debt by talking to the bank which issued the card to you. This usually requires a lump sum settlement but can hurt your credit score quite substantially. A better approach is to go for credit card debt consolidation. 

Can debt consolidation improve my credit score?

Yes, credit card debt consolidation can slowly improve your credit score by allowing you to clear high-interest credit card debt. When you pay your debt consolidation loan EMIs on time, your credit score increases over time. 

What is the advantage of consolidating credit card debt?

The main benefit of consolidating credit card debt is to get rid of high-interest debts and replace them with one personal loan that comes with a lower interest rate. This also allows you to repay just one EMI instead of keeping track of numerous due dates.