If you’re struggling to pay off the debt from multiple credit cards, then you should consider consolidating them to reduce the interest rates and pay one low, monthly payment. Before you move forward with consolidation, learn more about the process.
- Know What Consolidation Means
The purpose of consolidating your credit card debts is to combine all of your credit card loans into one balance. Once combined, you pay the financial agency a monthly payment that will be distributed to the creditors you owe money.
- Seek Guidance from a Professional
The first thing that you should do before considering the consolidation process, is talk to a financial counselor. The counselor will take a look at all your bills, debts, and finances to determine how much it will take for you to pay off your creditors within three to five years.
- Consolidation Can Cost You
Depending on the agreement you made with the financial agency, the consolidation may or may not affect your finances. Every agency is different; some might offer a 0% APR to new customers for a limited time, or they might charge heavily for each credit card balance transfer made in the process. This could mean you’’ have to pay high upfront fees or higher APRs after the introductory 0% reverts to the standard.
- It Can Affect Your Credit Score
Sometimes creditors will close down the accounts after you consolidate your credit cards. Closing them will affect your credit history and lead to a decrease in your score. To prevent this, have the creditors suspend the accounts instead of closing them.
- Limited Credit Card Use
Financial agencies will normally recommend that you don’t put any new charges on your cards until all the debt is paid off. Also, if the financial agency offers you 0% APR, it may only be applied towards your current balance and not on new purchases after the consolidation. Some agencies will allow you to use one card from your consolidation as long as it has a low balance and the transactions are for general purchases.
- It’s Not a Magic Solution
Consolidating will not completely solve your debt problems. It does, however, make your credit card charges easier to pay and it will give you more room to pay other debts you may have, or help you save money for future expenses.
- Consolidating May Not Be For Everyone
You should only consolidate credit cards if a considerable amount of your debt is on credit cards. If your debts are leaning more towards mortgages, insurance payments, car loans, and other debts unrelated to card charges, then consolidating your credit cards will not help.