The Smart Way to Consolidate your Credit Card Debt

Juggling multiple credit cards can be both confusing and time consuming. You have to worry about multiple interest rates, multiple due dates and multiple chances for late payments. One way to simplify, or even lower your payments, is by consolidating your credit card debts into one monthly payment. There are several ways you can do this, with one being transferring your balances into a single low interest rate credit card. However, a balance transfer can be tricky and you need to be 100% sure when making the decision, for it might ruin your credit score if handled incorrectly.

Be Smart. Here are some guidelines in consolidating your debt:

-         Understand your current situation. Collect all your credit card statements and add up the total debt you have to your creditors. Make sure there are no errors when doing this – an error could disqualify you.

-         Understand what you can save. Calculate the amount you can save monthly to pay off your debt.

-         Understand what you are getting into. Know how long the introductory low-APR window is.  A longer duration gives you more time to pay off your debt at a lower rate before it goes back to the standard (and usually higher) APR. Understand that typically credit card companies offer zero-percent for a limited period, but there’s a catch: a 0% APR does not mean it’s totally free. Be aware that when you transfer, there’s a one-time fee equal to 2-5 percent of the transfer amount.

-         Be Responsible. Avoid any late payments on the balance transfer card, as it can trigger an increase your interest rate AND if you make purchases on these cards, you will be charged additionally on the interest rates of purchase.

-         Know that you are really saving. Calculate how much you can save on interest during the 0% APR window compared to your existing rates. Then figure out how much you will pay in interest at the standard purchase rate after the 0% APR window, covering the estimated time you think it will take to pay off the remainder of the balance. Compare these numbers to what you would pay in interest at your current rate(s). The goal is to estimate how much money you can save in the long run if you choose to take on a new card for consolidation.

-         Get (the right) help. You can also try consulting a non-profit credit counselor to help you out with the decision but choose the reputable organization. A non-profit does not guarantee free or legitimate services, sometimes, they even charge higher fees.

Also, one of the benefits of consolidating credit card debts is the potential to increase your credit score. You can achieve this by keeping in mind the following:

-         The credit utilization or the amount of credit actually being used. Try to keep credit card balances low for higher or optimal credit

-          If possible, avoid closing old accounts after consolidation. 15% of a credit score is contributed by an established, aging account

In conclusion, if you wish to consolidate your credit card debt, and eventually pay off your debt sooner, you have to consider all the scenarios and be honest on your financial capability to sustain or meet payments on time. This process is not for everybody and it may end up costing you more in fees and rising interest rates on a balance transfer, which may hurt you and your credit score. You have to make sure this will benefit you in the long run, so it is best to compare the rates first and/or consult a credit counselor if you think you’re stuck on the right approach to resolving your debts.  Remember: Your way of life is at stake, not just your credit score.