Credit card consolidation can be a favorable option for individuals struggling with large outstanding balances across several credit card accounts. Having multiple cards results in several bills from multiple companies, and it can be a logistical nightmare to pay all of these bills individually every month. Moreover, multiple bills increase the chances that a mistake will be made when making a payment, and this can lead to avoidable late fees and additional interest payments. Individuals with multiple credit cards should, therefore, carefully consider the advantages of credit card consolidation.
Before the value of credit card consolidation can be considered, sufficient information must first be gathered so that a good decision can be made. Start by gathering together all paper bills and printing out statements from online banking accounts. It is also a good idea to obtain a comprehensive credit history report from a reputable credit agency so that all outstanding credit accounts can be identified. A recent bill should be obtained from each creditor listed on the credit history report. Since credit card consolidation aims to improve an individual’s finances in the future, it is also important to project future income and expenses so that credit balances in upcoming periods can be forecasted.
Understand Personal Needs and Limitations
Every individual has different circumstances that determine what decisions are best for their own situation. The value of credit card consolidation can, therefore, vary by a significant degree depending on income, outstanding debt, personal lifestyle, and other factors. Individuals should study the information they gathered about their financial situation to determine how much money they can afford to pay toward their credit card balances each month. The impact that monthly payments are likely to have on future debt should then be projected as accurately as possible. It is also important to honesty recognize personal limitations, such as a high potential for needing to take unpaid sick days for medical reasons, that could hinder the repayment process.
Reducing Credit Utilization
Increasing an individual’s credit score is one of the primary benefits of credit card consolidation. However, credit card consolidation must be done in the right way to ensure that credit scores are improved as much as possible. With an ordinary FICO credit score, 30 percent of an individual’s overall score is determined based on the total amount of credit that they are utilizing. When several credit card accounts are consolidated into a single account, the total amount of credit utilization will drop because fewer accounts and less unused credit will remain outstanding.
Minimizing Outstanding Balances
Although an individual’s total outstanding credit balance will not change after consolidation, balances can be repaid faster when the interest rates associated with a consolidated account are lower than the rates associated with the existing credit card accounts. As total outstanding credit balances come down, credit scores will improve. The interest rate, available credit limit, and outstanding balance of each credit card account must, therefore, be evaluated carefully to determine which accounts should be consolidated.
Be Careful with Cards Offering No Interest
Many credit cards offer no interest terms that can provide significant benefits. Unfortunately, many individuals neglect to read the fine print with no interest credit cards, and this can lead to significant trouble. Some credit cards with no interest charge high cancellation fees, and these costs will have to be paid when consolidating accounts. Moreover, some people choose to not consolidate credit card accounts with no interest, but this can be more expensive in the long run when the fine print says that interest rates will rise after a couple of months. Although keeping accounts with no interest can be advantageous, the total cost of these accounts must be considered when consolidating credit cards.
Use Caution with Credit Counselors
With millions of consumers deep in debt, an industry has formed around offering solutions to credit problems. Some credit counselors offer services that add genuine value through good advice and resources that make a difference. On the other hand, the credit counseling industry has a bad reputation because unscrupulous individuals often market credit counseling services that are nothing more than scams. When selecting a credit counselor, it is important to evaluate a prospective vendor’s reputation by looking at online reviews and checking with industry accreditation agencies. Individuals who investigate credit counselors before signing an agreement are more likely to get the results they seek while avoiding deceptive swindlers.
Credit card consolidation gets the best results when sufficient time is invested into researching the right decisions to make. Since every individual has different circumstances, determining the optimal approach to credit card consolidation is dependent on understanding individual needs and limitations. Good information and sufficient research are the foundation of making good decisions when consolidating credit cards. Individuals who consolidate their credit cards in the right way can minimize future interest payments while improving their credit history.