Credit card consolidation comes in a few different forms. The first one is the one that is the most hoped for; when you get a better rate on a new credit card and you transfer all of your old credit cards to the new card to save money. Another credit card consolidation tool is through personal or home equity loans. Lastly, credit card consolidation can occur through a consolidation company that helps you to pay off all of your credit card debt. This last option, however, can often adversely affect your credit and should be avoided if you can find a way to consolidate your credit cards by more traditional means.
The Importance Of Good Credit
Getting a personal loan might be the answer for those individuals who have too much credit card debt and need a solution before things get out of hand. However, such loans can be difficult to receive if things have gotten so far that they are only paying the minimum payments on their cards. This is because most banks will see them as a high risk as a loan recipient. If they own a home, it is possible to get a home equity loan at a very low interest rate, which can benefit people who are in financial trouble. However, rather than get into more debt, it is better to manage the debt that you have and keep your spending in check as well.
There are many benefits to having a credit card. If you have an emergency, for example, and you do not have the cash to pay for a broken down vehicle, a flight somewhere, or a medical problem, having a credit card can make a difference in your life. What’s more, used responsibly, credit cards can be used to purchase furniture, a refrigerator, a lawnmower, and other large purchases. However, it is when credit cards are used for general everyday purchases, such as paying bills that used to be paid by other means, purchasing food, or other day-to-day necessities that credit card problems may occur.
Because your credit score is so important in your daily life, it is necessary to ensure that your credit card spending is kept to a minimum. Or, that you use it purposely and pay off your purchases in a timely fashion. In order to establish good credit, you are going to have to use a credit card and make regular consistent payments. When someone has too many credit cards, even if they keep their balances low, a risk is assessed because the person might use the cards, regardless if this is their intention or not.
Consolidating Multiple Credit Cards
Combing multiple credit cards into one single credit card is a good way to negate the negative impact of having too many cards. The catch is, however, that you still do not want your balance on your new card to be too high. To do this, ensure that your running balance does not exceed 70% of your available balance. In addition, combining multiple cards onto one low rate card is an excellent way to save long-term money. There are online credit card calculators that will help you determine how much you can save by transferring your current balances to a lower interest card. You will need to include the transfer fees when calculating the overall costs and savings. Also, most providers who want your business will do this for you over the phone. However, it’s always a good idea to have the facts, rather than rely on someone else to give them to you.
Many people will apply for and receive a card because it has 12 month no interest terms for any balances that are transferred to the new card. Some people will go so far as to apply for a different card every year with those special terms until their total balance is paid off so that they do not ever pay interest on their purchases. Of course, in order to receive these kinds of deals, you must have good credit to work with. Be aware, that too much rotating credit can have a negative effect on your credit score and may not contribute to wise credit management. Check out your FICO score online if you don’t know what it is. Aim to maintain a rating of 700 or above.
Finding a good rewards card is another reason that people choose to consolidate all of their cards onto one credit card. Many reward programs will apply bonus points to the balance transfers as well as new purchases making it very beneficial for someone to move their balances over. Often times this ends up benefiting the consumer in two ways, especially if there was a rewards program with their old cards. Not only do they benefit from the balance transfer, but they also benefited from the reward programs on their old cards. There are also online credit card calculators that will help you to decide if the money you save with rewards programs, combined with the different interest rates, is worth making the change.
A frequent mistake you want to avoid when consolidating your credit cards is to ignore the transfer fee or the potential increase in interest rates if you miss a payment. That great no or low interest rate period can be lost if your payments are not made on time. Plus, you’ll incur an additional fee that will make all your effort wasted time and money. Truly, with all your credit dealings, on time payments work to your benefit when your are building credit or paying off debt.
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