If you have several credit card balances, paying all of them can be difficult. To make your life easier, you may want to consider consolidating your debt. When you consolidate your credit card debt, you put all of your balances on one credit card. You pay that one card until all of your debt is paid off. In theory, this may sound good, but it can be expensive if you do not approach it correctly. Before accumulating more debt, you need to determine the best way to consolidate your credit cards.
Look for the Right Card
To be successful when consolidating your credit card debt, you must find the right credit card. You have three options: using one of your current cards, balance transfer cards or low interest cards. This guide explains the benefits of each.
Using One of Your Current Cards
You may be able to save money by moving all of your balances to an existing card, as you will not have to have your credit pulled again, which can hurt your credit score. Using an existing card can also help you avoid balance transfer fees. If you have enough credit on this card to accommodate the rest of your debt, this could be a good alternative for you.
Balance Transfer Cards
When you transfer a balance from one credit card to another, the issuer will likely charge you a balance transfer fee, though some credit card issuers will waive this fee to attract customers and allow them to consolidate their debt without incurring more charges. On average, balance transfer fees are 3% of the transfer balance. Some balance transfer cards also offer an introductory rate of 0%, so you will not have to pay any interest for a certain period of time, which can save a lot of money. Make sure to read the terms and conditions, so you know exactly what you are getting.
Low Interest Cards
Because these credit cards have low APRs, they can be ideal for credit card consolidation. For example, if your current APR is 19.99%, you can save a significant amount by transferring to a card with 12.99% APR. Your credit score will determine whether you can open an account with a lower interest rate. If you have bad credit, you may not have this option. You will need to learn your score and figure out which cards are available to you.
It is best to find a card that offers a low ongoing interest rate and a low balance transfer fee, so you can save money during consolidation and throughout the repayment process. If you cannot find a card with these features, you will need to weigh your options to figure out which will cost you the most money. If it will take a long time to repay your debt, you will likely save money by switching to a low interest card, even if you must pay a pricey transfer fee. However, if you can pay your debt back quickly, transferring to a card with no balance transfer fees and a slightly higher interest rate could be the better option.
Your personal financial situation will determine which of these options is best for you, and you may need to do some calculating to figure out how much you pay on your current cards and how much you will save if you transfer your balances under each scenario. Make sure you factor in balance transfer fees and your new APR.
Consolidating Credit Cards
When you are ready to consolidate your debt, call your current credit card companies and give them the information for your new card so they can transfer your balance. Then, call the issuer with whom you are consolidating your debt to see if the balances have been transferred. If you are staying with the same company but using a different card, you may be able to take care of all of this with a single call.
It may take up to ten days for your balances to appear on the new card. If you manage your accounts online, you can check your account daily.
Paying Off Balances
Of course, consolidating your debt does not mean that you no longer need to pay off your debt. You will need to put together a plan to get your finances in order. The faster you can pay down your debt, the less interest you will pay, and you will be able to take advantage of your card’s introductory promotional rate.
Put together a budget, so you can determine how much you can afford to pay toward your credit card balance each month and make it a point to pay that amount every month. Even regular payments as low as $50 will make a difference over time.
You will want to stop using your card, as you do not want to add to the balance, unless there is an emergency. Also, do not fall into the minimum payments trap. They will give you the illusion of paying down your debt when you are really not. The only way to make a dent in your balance is to pay as much as you can as quickly as you can.
The best way to consolidate your credit cards is to find the right alternative for your unique situation and pay off the balance as quickly as possible. If you can do that, you will feel your self-esteem increase, and you will see your credit score improve.