Question 1

Why should you consolidate credit card debt?

Accepted Answer

Better debt management: When you combine multiple debts into one account, you create fewer accounts and due dates to manage. This can make it easier to track your debt and organize your personal finances. With a good debt management plan that includes fewer accounts, you can reduce the chance of accidentally missing a payment and hurting your credit score. Lower interest: If you transfer your existing debt to a card with a lower interest rate, you may save money and pay off the debt sooner. Or you may be able to get a lower monthly payment, which can free up funds for other parts of your budget.

Question 2

How a credit card with a balance transfer offer can consolidate debt?

Accepted Answer

Rather than using an existing card, you might consider credit card refinancing with a new card that comes with a promotional balance transfer offer. The intro rate and promotional period can vary depending on the card. For example, one credit card company might offer you a low introductory APR for 15 months. Another credit card issuer may offer a lower intro rate for a shorter time. You also might receive balance transfer offers on your current credit cards. Note that you might not be able to transfer balances between credit cards from the same creditor or loans from the same lender. You may have to pay a 3% to 5% balance transfer fee on each transfer. Compare the fee to the potential interest savings to determine if a balance transfer offer makes sense. It's a good idea to pay off the credit card balance before the end of the promotional period. If you don't, any remaining balance will start to accrue interest at the card's standard APR. Also, check if there's a promotional rate on purchases. If there isn't, making purchases will cause you to accrue interest on both your purchases and your transferred balances.

Question 3

When should you avoid consolidating debt?

Accepted Answer

Consolidating credit card debt generally doesn't make sense if you don't qualify for a low interest balance transfer or loan offer. Even if you can, there are a few circumstances when you might want to avoid consolidating credit card balances. If you have credit card debt because of overspending, you may want to consider your financial habits and mindset first. Otherwise, you could wind up deeper in debt if you move your balances and then continue reaching or maxing out your credit limit. Credit counseling might help you get to the root of your debt issues. A debt consolidation program won't get rid of your debt or monthly payments. If you can't afford your bills because of a medical emergency or lost job, you may want to reach out to your creditors to ask about hardship options. You should know that applying for and opening new credit cards and loans might hurt your credit score because a hard inquiry is placed on your credit report. Your score can recover as you make on-time payments and pay down the debt. However, if you're applying for a mortgage or auto loan, you might want to wait and consolidate the debt after you close on the new loan.

Guide to Credit Card Consolidation

Key Takeaways

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