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.
