Consolidating Credit Card Debt: What You Need To Know

Consolidating your credit card debt can eliminate hundreds, and perhaps even thousands of dollars of debt - if it’s done correctly. Before you decide to consolidate credit card debt, make sure it’s the right move for you.

Wait! Don’t Consolidate Yet

If you’re drowning in credit card debt, services that promise to erase your debt may tempt you. Oftentimes, these services are actually debt settlement companies in disguise. Using these can have serious consequences on your credit score and cost you down the road. Don’t let people or services take advantage of your vulnerability. Before you consider consolidating your debts or using a service, seek out a nonprofit credit counselor. They’re licensed and on your side.

You should also contact your credit card companies to see if they will lower your monthly payments. Normally, they're willing to negotiate.

What Is Credit Card Debt Consolidation?

Credit card debt consolidation combines debt from multiple credit cards and turns it into a single debt that requires a single monthly payment. It can also be consolidated with other loans. You can perform credit card debt consolidation without a debt consolidation service. There are two ways.

One method is to put your credit card debt on a new credit card that permits balance transfers. This method is especially useful when the amount of interest on the new credit card is considerably lower than the interest rate on your other cards. The best situation occurs when you can get zero interest, or low interest, on the new credit card. You won’t pay interest at all on the amount transferred during the offer period.

If you choose to go with a new credit card that offers zero interest or low interest, it might be an introductory offer. Know that once the introductory period is over, that the card will jump to its new rate. Some of them become quite high. Also, be aware that if you miss a payment, you may start to earn a higher interest rate.

The second method is taking out a home equity loan. If you decide to get a home equity loan, you want to be sure to keep up with your payments. Missing payments could end up costing you your home. If you choose either of the methods above, make sure you research all fees.

Who Should And Should Not Consolidate?

Consolidate if you're able to transfer your balance to a lower or zero interest credit card or if your home equity loan interest rate is low. If the interest rate is higher, it will only increase your debt.

If It's Right For Me, How Do I Go About Consolidating My Credit Card Debt?

Before you're ready to consolidate, add up your monthly payments, the interest rates on each card, and your total debt. Then look at the interest rates on credit cards you qualify for, what your payments will become once the introductory offer expires and any fees. Apply for the credit card, get approved, and transfer your balance.

If you use your home equity loan, your interest rate will depend on your mortgage. You’ll have to contact your mortgage broker for more information.