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What makes consolidation a great way to wipe your credit card dues?

Multiple credit card bills are difficult to keep track of. It's even more difficult to pay for all of them in a month. Consolidating your credit card bills might be a wise way of debt elimination, since it combines your numerous credit card bills together and arranges a single affordable monthly payment for you. Credit card debt consolidation can even bring down the interest rates charged on the bills to make repayment easy for you. Besides, if your credit card debts are gradually pushing you towards bankruptcy, consolidating them would be a sensible choice which can help you to avoid bankruptcy.

How too many credit card transactions can affect your finances?

Simple credit transactions can be damaging for your finances in the following ways:

  • Cash advances – Cash advances through credit cards carry a much higher interest than other forms of credit card transactions. Too many of cash advances can increase your credit balance to a large extent.
  • High Interests – Credit cards usually charge high interest rates than most other forms of debts. The high finance charges can make you pay more than what you have spent.
  • Carrying balance – Carrying a considerable amount of balance (more than 25-30 percent of your credit limit) on your card, invites in a lot of additional charges.
  • Multiple Bills – Multiple bills are difficult to manage. They not only drain a lot of your finances, it's also hard to keep track of them.
  • Missed payments – Paying less than the minimum and the missed payments result in penalties, which can increase the debt amount.
  • Late fees – Additional fees are imposed for not making on-time payments, which consecutively raises the debt amount.
  • Damaging to credit score – Unmanageable debt and credit balances, irregular and missed payments evidently bring down the credit score.

When to consolidate your credit card debts

You may have incurred debts through several credit cards, each with varying interest rates. If you're finding it difficult to remember multiple deadlines of your numerous credit card bills or failing to make timely payments toward your accounts, then you can choose to consolidate credit card debts. You'll be able to get rid of all your outstanding credit card dues over time by making single affordable monthly payments. Apart from merging your multiple bills together, a consolidation program can also help you to reduce the high interest rates charged on your accounts.

How to consolidate credit card bills

Consolidation simplifies your debt elimination process by merging your multiple bills together. You can choose to consolidate on your own or seek help from a professional credit card debt consolidation company.

Do it yourself (DIY): You can take up initiative on your own and try to consolidate your credit card bills. You'll need to approach a bank or a similar lending institution, and take out a loan to pay off all your existing dues. Or with a balance transfer credit card, you can shift the carrying balances from your high interest cards to a new low interest credit card. As all your existing debts get paid off, you can continue with the payments on the new loan or credit card. The consolidation loans usually come along with low interest rates, making it easy for you to solve your financial problems. However, you must shop around to choose the best possible option for yourself.

Debt consolidation services: Consolidation programs or services are offered by the professional debt relief agencies. Comprehensive credit card consolidation services include initial financial analysis, formulating a payment plan, and paying off debt through consolidation to help you get back on safe financial footing. Clients usually have to pay a certain amount as fees for this kind of professional services. However, debt consolidation scams are pretty common which can result in the loss of your hard earned money. Therefore, before you enroll with a credit card debt consolidation company, investigate the company thoroughly.

You can get these services in 2 ways. (a) You can consolidate credit cards with a consolidation program (b) You can take out a loan to combine credit card debt into one payment.

  1. Consolidating credit cards through a program: This type of program involves a debt consolidator who arranges a repayment plan on the basis of your affordability. This program is called credit card consolidation program. The debt consolidator proposes the new repayment plan to your existing creditors and negotiates till they accept it. Once your creditors approve the plan, the debt consolidator asks you to make a single monthly payment so that he can disburse it amongst your several creditors.
  2. Consolidating credit cards with a loan: You can take out a consolidation loan for paying off your credit cards. For instance, you can take out a home equity loan and pay off your multiple accounts instantly. The current interest rate on a home equity loan is 5.4%, which is less than what you’re paying for your credit cards. But since home equity loan is a secured debt, so financial experts often warn consumers against doing so.

You can also take out a personal loan to consolidate your credit cards. If you have a poor credit score, lenders will charge 25% interest on a $10,000 loan with a 3-year term.

Unsecured debt consolidation loans are also available. They carry a very high-interest rate and the maximum amount you can get is $5000.

Ultimately, the choice is yours. A consolidation loan is not a feasible option since you have to pay more eventually. But credit card consolidation programs can be a good option if you can simplify your payments and save money.

What are the other ways to consolidate credit card bills?

Apart from consolidation programs and loans, there are a few other ways to consolidate credit card bills and these are:

Other ways to consolidate credit card bills Pros Cons
1. Taking out a big loan from your friend You may get a loan at 0% interest
You can get a loan even with a very low credit score
Your personal relationship may get ruined if you default
Your friend may expect you to return the favor
2. Borrowing from your 401(k) account There’s no credit check
You may avoid paying a penalty
Your retirement savings get exhausted
You have to pay off the loan within 5 years
3. Borrowing against your vehicle The interest rate is lower than on credit cards You may need to have a good credit score
You may lose your vehicle in the event of default

4 Steps you should take to consolidate credit cards

Have you decided to consolidate credit cards? If so, then take these steps right now.

  1. Select the cards you want to consolidate: Check the SOL period on your credit cards so that you can ignore the ones on which the SOL period has expired. Find out the credit cards which have high- interest rates and fees.
  2. Know your affordability: Determine your financial goal, calculate your expenses, and decide how much you can pay every month after eliminating all your unnecessary expenditures.
  3. Research and consolidate your cards: Research your credit card debt consolidation options and consolidate all your credit cards. You know the options now. So it won’t be tough to make a decision. Check the other credit card debt relief options too. Choose carefully since your entire financial future is at stake.
  4. Stick to the repayment plan: Make sure you pay back your creditors as per the repayment plan. Otherwise, you would never be able to get out of debt. You have a long way to go. After you consolidate all your cards, make a fresh financial start in 2018.

How will you benefit if you consolidate your credit card bills?

If your multiple credit card bills is making life difficult for you, consolidation can be of great help. Check out the benefits that credit card consolidation can offer:

Single monthly payment: Consolidating your credit card debts can help you to get rid of the multiple bills that you have to pay each month. Once you enroll with a consolidation program, all your debts can be brought together and a single monthly payment is arranged, thereby making debt repayment much easier for you.

Lower interest rates: The high interest rates charged on your current accounts can be reduced, turning your payments more affordable. Besides, the payments will be applied more towards the principal than your interest.

Eliminate late and over limit fees: The agency offering you credit card consolidation services tries to waive off the late fees and the over limit fees charged on your accounts.

Reduced collection calls: When you sign-up with an agency for their consolidation services, you need to hand over a signed limited power of attorney to them. Consequently, they'll be able to negotiate with your creditors and handle the collection calls on your behalf.

Dodge bankruptcy: Consolidation can help you to pay off all your debts gradually. Thus, you won't need to file for bankruptcy and can avoid all the negative affect that bankruptcy leaves on your socio-economic life.

How credit card consolidation can affect your FICO Score?

Consolidating the credit card debts can actually leave a positive impact on your FICO score. It's so, since all of your credit card accounts will be showing as 'paid off' once you finish with the consolidation program. Regular monthly payments while you're continuing with your program, will show your sincere efforts in paying off the debts, and gradually your score will stand the chance of improvement. However, missed payments even during the program may leave a negative impact, resulting in the decrease of your FICO score.

Last Updated on: Fri, 8 Jun 2018

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