Nothing is worse than feeling like you have accumulated more credit card debt than you can handle. And, realistically, almost any amount can quickly become too much to handle, thanks to the high interest rates most revolving debt carries. For this reason, many people decide to consolidate credit card debt.
Why Consolidate Your Credit Card Debt?
The only reason to consolidate your credit card debt is because you want to get out from under it – and, realistically, who doesn’t? However, if you do not keep this goal in mind, you can easily make a decision that will cost you more in the long run, or even jeopardize your credit score. So remember, when consolidating your credit card debt, make sure every move you make will result in less interest and fees and/or a shorter pay-down period.
Consolidate Credit Card Debt on Another Card
Perhaps the most common way to consolidate credit card debt is to move all your balances to the same card. If you’re like most people, you probably get credit card offers in the mail on a regular basis. In this method of consolidating credit card debt, the idea is to find a credit card offer with a better deal than you are currently getting, and move your balances so that you can take advantage of the lower rates and fees.
What to Look Out For
Consolidating your credit card debt on another card is only a good idea if the new card really is a better deal than you already have. If you aren’t careful, you could end up costing yourself more money or even destroying your credit rating. To make sure you don’t end up in a worse situation than you were before, you will need to:
- Find out how long the introductory rate will last. Most new card offers flash super-low rates at you in big numbers, hoping you won’t look any further. However, usually these “teaser” rates only last a short period of time. Also, if you go over your credit limit or make a late payment you may lose your initial deal. Make sure you know how long the introductory rates will last, and what you will have to do to keep them.
- Make sure the introductory rate applies to balance transfers. Many cards offer a different teaser rate for new purchases than for balance transfers. Make sure that you are looking at the correct rate when you make your decision.
- Find out the normal interest rates, and compare them to what you are already paying. Don’t make your decision based solely on the teaser rates, especially if they won’t last forever – which, in most cases, they won’t. Unless you can feasibly pay off the entire balance during the introductory period, you will need to make sure the normal rates are also a better deal than your current cards.
- Find out if the card carries an annual fee. Oftentimes cards will make up for lower interest rates by charging an annual fee. Take such fees into account when you are determining whether the new card truly offers a better deal.
- Find out if you will be charged a balance transfer fee. Most cards apply a fee to all transfers – the only question is, how much. Balance transfer fees are often stated as a percentage of the total transfer, although some cards cap these fees so that they will not go over a certain amount.
Consolidate Credit Card Debt Using a Loan
Another approach to consolidating credit card debt is to get a loan for the amount of revolving debt. Debt consolidation loans are useful because you can spread the payments over a longer period of time, lowering the payment amount. Also, because the loan is for a specific amount and extends over a specific period of time, the payments will be the same every month, making it easier for you to budget for them.