Consolidating Credit Card Debt

Consolidating credit cards might be something to consider in certain situations. In fact, there are two major reasons to do it:

Spending Discipline- With all of your expenses on one credit card, it’s easier to keep track of how your money is being spent. It makes your financial life easier. There are fewer payments to make and everything can be monitored from one place.

Cash flow- This is the main reason you might want to consolidate your credit cards. There are several places where you could positively impact your expenses:

• Fees- If you have four credit cards you might have four annual fees. Consolidate your credit cards and you are left with just one.
• Interest rate (APR)- This is an area you want to scrutinize. If you have four credit cards with 17%, 16.5%, 13% and 19% interest rates, how much money can you save if you move all of the balances over to the 13% credit card? Better yet, you might want to consolidate all of them onto another lower rate card, especially if you can take advantage of one of the many low rate balance transfer credit card offers.
• Payment- If you consolidate your cards, the resulting one payment may be lower than combined payment of all of cards you currently have. For example, if the payments you make for four cards total $400 per month, maybe consolidating your cards will result in one payment for $350.

Consolidation Pitfalls

There some things to watch out for if you’re considering consolidating all of your credit card balances onto one card. They also have to do with your cash flow:

Fees- Consolidating balances is the same as transferring balances onto another credit card. Many cards charge balance transfer fees which could make transferring balances cost prohibitive.

Interest Rate- If you decide to take advantage of an introductory, low interest rate credit card, make sure you know what the rate will become after the introductory period passes. It could be higher than the rates you have on the current cards.

Payment- If possible, make sure that the majority of your monthly payment is going toward paying down your balance as opposed to interest. That way, your total debt will be decreased sooner.

Finally, if you truly want to gain control your finances by consolidating many balances onto one credit card, avoid using the freed up credit on the cards you are transferring the balance from. You could end up with too much debt that may be difficult to pay off.