The modern marketplace makes it all too easy to have way too many credit cards taken out in your name. If you have a lot of credit card debt, you need to know when it’s a good idea to consolidate your credit cards to minimize how much interest you pay and improve your credit score. Consolidating credit cards – and using the debt snowball method – can help you get your debt back under control.
When You Have Multiple High Interest Rates
Each credit card you have in your name has a separate interest rate. Each of those interest rates then accrues interest, which costs you more money in the long run. Remember, for each credit card balance you maintain, you have to pay interest.
Therefore, having multiple credit cards with separate interest rates can seriously put a damper on your wallet and dramatically decrease your credit score. Consolidating your credit cards into a single loan or balance transfer credit card is a wise idea in this instance.
When You Pay Multiple Annual Fees
Similarly, if your credit cards each charge you a separate annual fee, you could pay $100 or more each year just to keep those credit cards open. It’s in your best interest to close those credit accounts and consolidate your credit card debt to save yourself money on an annual basis.
When Your Credit Score is Dropping
Lastly, having multiple credit cards in your name could, in some cases, act as an anchor to your credit score, preventing it from rising to its true potential. Since your credit score can affect the loans and credit cards available to you, as well as your likelihood to be approved for a mortgage or other major loan, getting your credit score up as high as possible should be a major priority.
How to Consolidate Credit Card Debt
Alongside other debt repayment strategies, you can consolidate your credit card debt by bringing all of that debt into a single new loan or credit card balance.
In doing this, you’ll only have to pay one bill at the end of the month and you’ll only have one interest rate to contend with. You can do this in a few different ways:
• Credit counseling services can help to negotiate lower rates with your creditors or help bring several outstanding credit card debts under a single, new payment plan.
• A balance transfer credit card may allow you to transfer the balances of existing credit cards onto a new credit card with a lower interest rate and no annual fee. On the downside, balance transfer credit cards don’t close your existing credit accounts; you’ll have to do this yourself by calling each creditor one at a time.
• A debt consolidation loan will allow you to take out a new loan and pay off your credit card debt using a big lump sum. Then all you have to do is pay off the debt consolidation loan, which will have one interest rate and one bill. Again, you’ll need to call the creditors yourself to close your credit card accounts or work with your debt consolidation loan lender to close them for you.