How to choose the best option for consolidating your credit card debt.

Do you carry balances on multiple credit cards? If so, you might have considered credit card debt consolidation. Holding several cards means paying several monthly bills – each with a separate, and often high, interest rate. To lessen the burden, and pay off debt faster, many consumers consolidate all balances onto a single card.

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However, before making the decision to consolidate it’s important to consider these five points:

1.  Not all scenarios are created equal

To determine if credit card consolidation is right for you, it’s important to answer a few simple questions:

  • How much debt do you have? Gather all credit card statements, and add up how much debt you owe to your creditors.
  • How much can you realistically put toward paying the credit card monthly? The goal is to pay off debt quickly, so tally up how much you can afford to allocate monthly.
  • How long is the introductory low-APR window? A longer APR duration gives you more time to pay off debt before the rate reverts to the standard, and usually much higher, APR.

With these three factors in mind, figure out how much you can save on interest during the 0% APR window compared to your existing rates. Then, calculate how much you’ll pay in interest at the standard purchase rate on a new card over the time you think it will take to pay off the remainder of the balance. Compare these numbers to what you would pay in interest at your current rate(s).

2. Balance transfers can impact your credit

Consolidating credit cards and leveraging low balance transfer offers has the potential to increase your credit score. But to accomplish this, it’s important to follow a few pointers. For example, for the general population, 30 percent of the FICO® Credit Score is determined by “credit utilization,” which is the amount of credit actually being used.1

In general, you should try to keep credit card balances low. When you consolidate the cards you’re consolidating will have much lower credit utilization ratios, but your overall ratio will remain the same. However, the lower interest rate you’re paying during the introductory period means you can pay more toward your balance each month, helping lower your overall credit utilization more quickly.

In addition, you may want to avoid closing old accounts after consolidation. Account age typically contributes to 15 percent of a FICO® Score, therefore closing old accounts may decrease the overall age of your credit history.1 Just be sure to hide those old cards away somewhere secure to avoid racking up further debt.

3. Check to see if a 0% APR applies only to balance transfers

An introductory APR of 0% might only apply to balance transfers. As a result, new purchases could be charged the standard APR – which can be very high. Your cardholder agreement will state the APR for purchases and whether any intro rate applies.

Creating a budget, and sticking to it, will help with getting the most from credit card consolidation and paying off balances faster.

4. 0% APR doesn’t mean FREE

While a 0% intro APR is a great way to pay off credit card debt faster, and save on interest payments, it’s not free like most consumers think. Balance transfer fees are typically charged, which range from 2 to 5 percent of each balance transferred.

In most cases, despite the upfront costs, you’ll still enjoy substantial savings in the long-term. However, it’s something to consider when deciding if credit card consolidation is right for you.

5. Not all credit counselors have your best interests in mind

If you’re considering getting outside help tackling your debt, be sure to thoroughly evaluate credit counselors before choosing one. “Non-profit” doesn’t guarantee that services are free or legitimate. In fact, some non-profit credit counseling organizations charge very high fees. Signs of a reputable organization include:

  • The willingness to send free information about their services, without requiring you to share any specific details about your situation
  • Licensed to offer services in your state
  • Offer a range of services, from budget counseling to savings and debt management classes
  • Accredited and certified counselors

Research credit counseling agencies with your state attorney general and local consumer protection agency. These agencies will help you uncover if the company has any complaints against them.


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