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Do you owe money on multiple credit cards? If you do, you need to consider credit card consolidation because paying off several cards means paying multiple monthly bills with high varying interest rates. To reduce this burden, you should consolidate all your debts into a single card.
Before deciding to consolidate, you should consider the following points:
Does 0% APR only refer to balance transfers?
The zero percent introductory rates could only apply to the balance transfers. This means that any new purchase will be charged the normal APR, which might be very high. Your cardholder agreement should state whether any introductory rates apply and include the APR for purchases.
Creating a budget and sticking to it will allow you to get the most out of credit card consolidation plans.
Not all scenarios are equal
To find out if credit card consolidation right for your situation, answer the following questions:
– How much can you put toward debt repayment per month? Your goal is to pay off your debt as quickly as possible.
– How much debt do you owe? You should gather all your credit card statements and compute the total amount of debt that you owe.
– How long does the introductory APR window last? The longer the APR duration, the more time you will have to repay your debt before the rate of interest reverts to normal.
These factors will help you to figure out how much you can save during the zero-percent APR window.
You should then calculate how much time it would take to repay the remaining debt.
Balance transfers affect your credit
Consolidating credit cards and taking advantage of low balance transfer offers can increase your credit score. However, you need a few pointers to accomplish this. For instance, 30 percent of your FICO score is determined by credit usage, which refers to the amount of credit you are actually using.
Generally, you should keep your balance low so that your cards will have a low utilization ratio while your overall ratio stays the same. The low interest rates paid during the introductory period mean that you can pay more debt, lowering your utilization faster.
Zero percent APR does not mean free
Although zero percent APR can help you to pay your debt faster while saving on interest payments, it does not mean free. You will be charged for balance transfers and the amount ranges from 2-5 percent of each balance that you transfer. Despite these upfront fees, you will still enjoy greater savings in the long-term.
Some credit counselors do not have your best in mind
If you are thinking about getting outside help, you need to evaluate the credit counselor thoroughly. The word ‘non-profit’s does not guarantee legitimate or free services. In fact, these organizations might charge very steep fees. You should consider the following when looking for a reputable organization:
– Are they licensed to offer services in your area?
– Are they willing to send free information about services without asking for any in return?
– Are their counselors accredited and certified?
– Do they offer a wide range of services? They can range from debt management classes to budget counseling.
Advantages and disadvantages of credit card debt consolidation
Here are some credit card debt consolidation program pros and cons:
Pros
– Lower interest rates
– All debts are rolled into one payment
– You can pay off debt faster
– You can evade credit damage
Cons
– If the payoff plan fails to work, you go back to square one
– Using credit before repaying debt only digs a deeper hole