Carrying balances on multiple credit cards usually means paying several high interest monthly bills. If you are a multiple credit cards carrier then you might have considered consolidating your credit card debts. Many consumers in order to lessen the burden and pay off their debt faster consolidate all their balances into a single card. However, to consolidate your credit card debts, you have to know how to choose the best option for that.
Here are five important points to consider before deciding to consolidate your credit card debts:
1. All scenarios are not created equally
It is important to answer the following questions while determining if credit card consolidation is right the right option for you
• How much debt do you owe? To determine how much you owe your creditors in total, you should take all your credit card statements, and add/sum up the figures.
• How much can you Budget Monthly towards paying off the credit card debt? In consolidating your debt the goal is to quickly pay off your credit card debt, so you have to consider, decide and allocate the amount you can afford to pay monthly.
• What Is the Time Frame Of The introductory low-Annual Percentage Rate (APR)? Consolidating your multiple credit cards debts into a single card might result in payment reduction through a lower and long term APR for your debt repayment. A substantial or significant amount of the debt can be paid off during a long, low APR before the rates which usually have a much higher APR revert to the standard form.
After taking these three factors into consideration, you should be able to figure out or calculate how much interest you can save during the 0% APR time frame and compare it to your present multiple credit card debt rates. You should calculate how much interest at the usual purchase rate you will pay on a new card, estimate how long it would take to pay off your outstanding balance then compare the amounts you got to the current interest rate(s) you would pay.
2. Transferring balance can impact your credit.
Your credit score has the potential of increasing when you consolidate your credit cards and leverage low balance transfer offers. However, it is important to follow a few financial advices in order to accomplish this.
Try Credit Utilization. Most of the time, Credit utilization is what determines credit score. ‘Credit Utilization’, is the amount of credit you actually make use of. Try to keep credit card balances low for optimal credit. For example, if your credit limit is $10,000 then your balances on the credit card should be $3,000 or less. This means that your consolidated cards will have lower credit utilization ratios, but your ratio all together will remain the same. However, the lower interest rate you’re paying during the introductory period means you can pay more towards your balance each month, helping lower your overall credit utilization quicker.
After consolidation, do not close old accounts. Account age usually plays a significant factor of up to 15 percent of a credit score, therefore closing your old accounts after consolidating your credit card debts would decrease the general age of your credit history. However, to avoid incurring more debt, make sure your old credit cards are securely hidden away.
3. Find out if Balance Transfers are the only Transactions 0% APR Applies
0% APR might apply only to balance transfers as an introductory APR after which the standard – usually very high APR could be charged for new purchases. The application of introductory APR rates and whether it applies to APR for purchases will be stated in your card holder agreement. To be able to benefit immensely from credit card consolidation and pay off your credit card debt faster, you should set out a target and budget and stick to them.
4. 0% APR Doesn’t Mean FREE
Most consumers think that a 0% intro APR means it’s free. While it is an effective and good way to help you save on interest payment and faster credit card debt pay off, fees are charged for transactions like balance transfer with a percentage ranging from 2 to 5 of each transferred balance.
Despite the beginning costs, in most cases you will still enjoy long term substantial savings. However, when determining or considering consolidating your credit card debts and if it is the best option for you, this is something to consider.
5. Not All Credit Counselors Have Your Best Interests in Mind
If you’re seeking to get professional, outside or expert financial help in tackling your debt, you should evaluate credit counselors thoroughly before deciding on which one to choose. Credit counseling agencies that advertise themselves as “Non-profit” might not guarantee legitimate or free services. In fact, some non-profit credit counseling agencies charge exorbitant fees. Here are Signs that a credit counseling agency or organization is reputable;
• The willingness to send you free information about their services.
• They are licensed in your state to offer services.
• Not limited but offers a wide range of financial services, from classes on debt management to savings to budget counseling.
• Certified and Accredited Credit and/or financial counselors
Contact your local consumer protection agency and state attorney general to help you check and discover if there have been complaints against the credit counseling agencies.