Do you currently have credit  card debt? Are you trying to   pay it down…but it seems like somehow  you just keep getting deeper into debt? Throughout our many years in banking, we’ve worked  with a lot of clients in the same situation.   So today, we’re going to discuss the best  options for paying down credit card debt.   First, we’ll talk about why a balance transfer is  one of the best weapons in a war on debt. Then,   we’ll discuss personal loans and how they work.  Finally, we’ll wrap up by reviewing a few options   that might be helpful to someone who isn’t able to  qualify for a balance transfer or a personal loan.

Hello everyone, this is Luis with Herobanker.com  and we’re you’re friendly neighborhood bankers. Debt comes in all forms and sizes. Some debt,  like a mortgage or a car loan, can be beneficial.   But other debt, like credit card debt, can  feel like a huge weight on your shoulders.   This is especially true if  you’re only making minimum   payments and the amount that you  owe is going up instead of down. So, if you’d like to find out the best options for  dealing with credit card debt, let’s get started. Option #1 is a credit card balance transfer.  With a balance transfer, you’ll be taking the   total amount that you owe…and moving that balance  over to another credit card, with a lower interest   rate.

The reason why this is beneficial  would be best explained with an example: Sally currently has a credit card with  ABC Bank. Her balance on that credit   card is $10,000 and the interest  rate that she’s paying is 20%.   This means that every year, Sally will incur  about $2,000 in interest charges on that card. Now, this doesn’t necessarily mean that Sally  will pay $2,000 in interest charges for the year.   Because if Sally is only making the minimum  payment every month, then she’s not even   paying down what she owes. So, in this case, Sally’s  total debt would be going up instead of down. This is a major factor in how many people end  up down the rabbit hole of credit card debt.   We highly advise against making minimum  payments, when possible. Now obliviously,   things happen and sometimes the only  option is to make the minimum payment.   But if this is the case, then we need to  understand that paying high interest on   a credit card, is probably not the best  way to handle our debt in the long term.

So, what do we do? Well, this is  where a balance transfer can help.   Remember, Sally has a credit card with ABC Bank.   She currently owes $10,000 on that card  and she’s paying an interest rate of 20%. Thankfully, Sally comes across a Balance  Transfer Credit Card from XYZ Bank.   XYZ Bank is offering Sally a new credit card. This  card comes with an offer of 0% APR for 12 months   on balance transfers. So, if Sally accepts this  offer, this means that she’s opening a new credit   card with XYZ Bank, with a 0% interest rate for  12 months. The $10,000 credit card balance that   is currently with ABC Bank can now be transferred  to XYZ Bank, at a much lower interest rate. So, instead of paying 20% on her old  credit card she now has 12 months of   0% on the new credit card. Remember,  Sally would have incurred about $2,000   in interest if she had continued to pay  20% on her prior card. But with this   new card she’ll pay 0 dollars in interest for  12 months because for 12 months her APR is 0%. Paying $0 instead of $2,000 over the same  amount of time sounds too good to be true,   right? And this is why a balance transfer  can be a very valuable tool in your   financial toolbox.

When used properly a  balance transfer can save you hundreds,   if not thousands, of dollars…and because  you’re not paying interest during the   promotional timeframe, this makes it  easier to actually pay down your debt. Now, the new credit card will most likely  charge what’s called a Balance Transfer   Fee. This means that you’ll pay a small fee in order to process   the balance transfer. Some of you may be  thinking, I knew there was a catch! Well,   not really. Because the typical balance transfer  fee is only 3-5%. So, let’s do the math on that. Remember, in one year, Sally would have incurred  $2,000 in interest on her prior card. But a 3%   balance transfer fee on a $10,000 transfer is only  $300. So, over a one-year period, Sally would save   about $1,700 by doing a balance transfer…and  that is the power of a balance transfer.

A balance transfer can also be used  to payoff multiple credit cards,   not just one. So, if you owe money on three  cards, you can do a balance transfer for   each card. This will consolidate  all three of those cards into one. Most balance transfers will also allow you to  transfer other debts, like a personal loan,   as well. So, it’s usually not  limited to just credit card debt. One final note on balance transfers is  that sometimes they can be done   on one of your existing credit cards. So, if  you have money available on a credit card,   then your card provider may reach out  to you with a 0% APR Balance Transfer   offer.

These are sometimes sent  to you via postal mail and e-mail. Before we move on, if you’d like more info about  Balance Transfers and interest on credit cards,   check out Herobanker.com. We’ve included links  to these pages in the video description. Also,   if you’re enjoying the content, we would greatly  appreciate it if you can hit that subscribe button.   That way, we can keep you updated on  banking, finance, the economy, and more.

Ok, the second option for dealing with credit card debt is a personal loan. A personal loan allows   you to borrow money for a specific purpose, such  as debt consolidation. Once the loan is approved   and funded, your existing debt will be paid off  and consolidated into one new loan. You will then   repay that loan with monthly installment  payments, until the loan is paid off. The   payment on this loan will have a fixed interest  rate and a fixed payment amount every month. So, a personal loan might look something like  this: George takes out a $10,000 personal loan.   The loan has an APR of 15% with a 5-year term.  This means that George will make a monthly   payment of $238 for the next 5 years.  After that, the loan will be paid off.

You can think of a personal loan  as similar to an auto loan. But,   instead of the money being used to buy a car,  you’ll be using the money to consolidate debt. Ok, now let’s discuss some of the  pros and cons of a personal loan. One benefit is that with a personal loan you  will have one fixed monthly payment. This   usually makes it easier to pay off debt.  Also, you will probably pay off your debt   quicker and pay less interest. Remember, with a  credit card, it’s easy to fall down the rabbit   hole of only making minimum payments…and  doing this does not actually lower the   amount that you owe. In fact, this can often  cause the amount that you owe to increase.   But with a personal loan, the amount that  you owe will immediately start to decrease. This brings us to one of the cons of a personal  loan. With a personal loan, you might have a   higher monthly payment than you’re used to. This  is especially true if at the moment, you’re only   making minimum payments on your credit card.

For  example, let’s say you have three credit cards and   the minimum payment on each card is $25 per month.  In this case, you’re only making total payments of   $75 per month. But if you consolidate that debt  into one personal loan, then your monthly payment   will probably be higher than $75 per month. This  is because the monthly payment on a personal loan   is a principal and interest payment. But with a  credit card, those $25 minimum payments are mostly   going towards the interest owed, and not the  principal balance. Again, think about a personal   loan like an auto loan. These loans tend to  have higher monthly payments than a credit card. Another drawback of personal loans is that the  interest rates tend to be on the higher end. Also,   some personal loans can charge fees that can get pretty high. The interest rate and   the fees will usually vary, depending  on your credit and other factors. Someone with good credit, high income, and  low debt, will probably be looked at as a   more credit-worthy borrower. This usually  means a lower interest rate and no fees.   However, someone with bad credit, low income,  and a lot of debt, will probably be looked at as   a less credit-worthy borrower.

This usually means  higher interest rates and relatively high fees. So, you might see that ABC Bank offers personal  loans with an APR as low as 9.99%. But remember,   it’s likely that the only people who  will be approved for that low rate,   are people with good credit, high income, and  low debt. Someone will bad credit, low income,   and high debt will probably get a higher interest  rate. Every lender is different.

Some lenders   cater to borrowers with good credit. While other  lenders cater to borrowers with bad credit. Usually if a lender caters to borrowers  with good credit, they will not charge a   fee. Or, the fee will be small. But if a lender  caters to borrowers with bad credit, then those   lenders tend to charge fees that can get pretty  high. The most common fee is an origination fee,   which is a fee for processing the loan. This fee  is usually a percentage of the total loan amount. So, let’s say on a $10,000 loan  that the origination fee is 5%.   This means that the lender will charge you $500  and then give you $9,500…with the $500 deduction   being the origination fee. Obviously, this eats  into your total amount received, which is not   great. But unfortunately, for someone with poor  to fair credit, this might be the only option. Before we wrap up personal loans, we’ll  say this: personal loans can be tricky.   Oftentimes if you really need a personal loan,  then it can be tough to qualify for one. This is   because if you’re in need of a personal loan, then  it’s likely that you’re already in debt…which a   lender is going to view as higher risk.

Therefore,  this can make it more difficult to qualify. The third option for consolidating debt is  probably the best option. But it requires   you being a homeowner. This third option  is a Home Equity Loan or Line of Credit.   This means that you’re taking out a loan  against the equity in your home. We won’t   get into all the specifics of how this works,  because that would require a video of its own. But basically, if you have equity in your  home, then you can take out a loan against   that equity. The biggest benefit of doing this is  that you will probably secure the best interest   rate possible for a loan or line of credit.

This  interest rate will likely be much lower than the   interest rate for a personal loan. This is because  banks really like it when you borrow against your   home…because people are less likely to default  on a loan, when their home is used as collateral. One drawback to a home equity loan is  that they often take a longer time to   process. Depending on the lender, the process  usually takes a few days to a few weeks.

So,   if you need the money fast, then this might  not be the best option. Another potential   drawback is that you’ll be borrowing against  your home, which some people might not like. Ok, so those are three of the best  ways to to deal with credit card debt. If none of   these options work for you, then there  are a few other options.

These are not   options that we necessarily recommend,  for a variety of reasons. But if all   other options have been exhausted, then  these may be worth taking a look at.   So, we’ll just list these options quickly. But  before we list them, we also suggest making sure   that you’ve come up with a debt management  plan first. This should involve lowering   your expenses, if possible, and also having  a long-term plan for how to handle your debt. Ok, so these other options include: Number One: Debt settlement programs - These are  somewhat similar to debt consolidation loans,   but they also have differences. Some non-profit  companies will offer debt consolidation loans   with certain limitations or contingencies. Other  companies will offer debt settlement programs.

They   may work with your creditors to lower the amount  that you owe. However, this option can be costly,   messy, and time-consuming. Also, this option is  almost certain to negatively impact your credit. Number Two: 401k or Pension - If you have a  401k, then you may be able to withdraw money   or take out a loan out against it. This often  comes with penalties and tax implications.   So usually, this is not something we  advise doing for debt consolidation,   unless other options have already been exhausted.   Also, if you’ve recently left a job, then you  may be able to withdraw from a pension. However,   not all companies offer a pension, and this can  also come with penalties and tax implications. Number Three: Auto Equity Loan - If  you have equity in your vehicle,   you may be able to get a loan against the equity.  This is similar to a home equity loan.

However,   keep in mind that you’re using  your vehicle as collateral. So,   if you can’t make the loan payments, then  it’s possible that your car can be taken away. Once again, these are all options  that we wouldn’t usually recommend,   unless other options have first been exhausted. Ok, so that’s our conversation about some  of the best ways to deal with credit card   debt. We hope the information was helpful  and easy to understand. We’d love to hear   any questions or comments that you might have.  Have you recently consolidated your debt? If so,   what method did you use and how’s it  working out? Or, would you like us to   drill down further on anything that we discussed today? Thank you again for taking time out  of your day so that we can help you   become your own financial hero!  We hope to see you again soon.

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