When a consumer has a number of credit cards, they may be wondering about consolidating the debt. Whether this is the right approach for you will depend on the interest rates you are currently being charged and how much cash the strategy will free up.
Factors to Consider Before Consolidating
The first thing you need to do to figure out whether consolidating your credit card debt is the right thing to do is to make a list of how much you owe and the interest rates you are being charged on each card. If each card is charging you approximately the same rate of interest, then consolidating all of your credit cards is probably not the best approach for you (unless you can find a new balance transfer credit card or line of credit with an even lower interest rate).
However, if you can see that you will be charged a lower rate of interest by transferring a balance from one card to another, then it’s a good idea to consider doing so. You will want to make sure that you understand fully the terms that your credit card company is offering for balance transfers. Companies want to avoid a scenario where customers keep switching from one lower interest rate card to another. Be sure that you have read all the terms carefully and that you understand them before making your final decision.
Some cards will offer a lower interest rate on balance transfers than new charges on a card. Be sure to find out whether that is a permanent interest rate that you can expect to pay or if it’s only offered for a limited time, say between six and 12 months. Once you have all the facts, you can start to look your options for transferring a balance.
Transferring Your Balance to Another Card
If you are considering opening a new credit card account for the purpose of consolidating your current debt, you may need to tell the company that you want to transfer a balance at the same time. As soon as the card is issued, the new credit card company will go ahead and issue payment on the old card for you.
Another method you can use to transfer an existing balance to another card is to call the credit card company’s customer service line to give them the particulars. The company will look after paying off the other card and transferring the balance to your account.
If you choose this option, be sure to check your next statement carefully to ensure that the balance was transferred and that the amount corresponds to your records. While you are waiting to get your next statement, continue to make the minimum payment on the card that you are transferring the balance from. That way, you keep your account up to date.
Getting a Debt Consolidation Loan
Another option available to consumers who are interested in consolidating their credit card debt is to apply for a debt consolidation loan from a bank or another type of lending institution. This approach can help you manage your debt in a couple of ways. One of them is that instead of having to make multiple payments on credit cards each month, you simply make one loan payment. The convenience of doing so is very attractive to people who don’t want or need the hassle of juggling multiple payments each month.
Another way that taking out a consolidation loan will help consumers is that they usually come with a lower rate of interest than what credit card companies charge. This is not the same kind of revolving credit that a credit card gives you, but since more of your payment is going toward the principal amount that you owe, you will be making a bigger dent in the amount you owe each month.
Be sure to ask about the total amount of interest you will be paying over the term of the loan. The total cost of borrowing is important information that you need to be aware of. It will likely be a lot less than continuing to pay the credit card company rates, but you should know how much money you will save up front. If you find that you need to extend the life of the loan too much, it won’t be worth the trade off.
Deciding to consolidate your credit card debts into a single payment can make good financial sense. You save interest and free up some much-needed cash in your budget. If you are considering transferring an existing balance to a lower-rate credit card, you can start by comparing some of the various balance transfer credit cards and also by looking at some options by clicking on our free credit card Chaser tool. Start finding the best credit cards now!
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