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If you have several different credit cards with running balances, you might be able to improve your credit by consolidating your cards. However, this option is not for everyone and if you want to make it work, you need to know how to do so correctly.
For example, if you consolidate all of your cards onto one new card but carry a high balance on that one card, your overall credit utilization will go up, thus hurting your credit score. If you take a personal loan in order to pay off high balances on those cards and keep your utilization low, your credit will improve.
So let’s look at how it can be a good thing.
Here is how it can help your credit to consolidate your cards:
You only have one payment to worry about each month as opposed to several.
- You can roll higher interest cards into the one lower interest payment and save in fees.
- If taking a personal loan to consolidate, you can lower your credit utilization and improve your credit score.
- You avoid taking on new debt and work to pay off the existing debt.
Another option that you have is to work with a debt relief or consolidation company. They will negotiate on behalf of you to the creditors and try to get you lower balances, payoffs, and lower interest rates. Just be aware that if the balances are lowered, the creditor might report a charge-off or bad debt which will reflect poorly on your credit score. You want to avoid this.
Keep in mind if you are thinking about consolidating your credit cards that when you apply for a loan to do so, it will place a hard inquiry on your credit report. This will cause your credit score to dip. However, if you use it to reduce your credit utilization, that can improve your score greatly so it more than balances out.
You also need to know that in order for this to help your credit score, you need to keep the credit card accounts open. This means there is always the risk of running up additional debt on the cards that you have paid off. Many people do this and it will not help you with your credit score improvement. If you worry that you might do this, find ways to prevent it like not carrying the cards with you, or freezing them in a block of ice, making it harder to use them.
If you’re still unsure whether or not credit card consolidation is right for you, contact a credit counselor to discuss the matter and your personal needs.
You’ve got more debt now than ever before — but what if there was a way for you to get out from under all that financial pressure without having to resort to bankruptcy or foreclosure? What if you could improve your credit score at the same time? Would this change how you think about managing money? It certainly would.
Debt is something we all deal with every day, whether we choose to admit it or not. There may even be times when we find ourselves in situations where we feel burdened by our debts. For instance, maybe you carry high balances on multiple credit cards because they seem easy enough to pay off, while other bills pile up month after month.
Maybe your home has gotten behind on making its mortgage payment, which means you need to keep paying extra each month just to stay afloat. Or perhaps you’ve taken out student loans, and now you’re struggling to manage these monthly payments.
In any case, dealing with too much debt can become stressful. And sometimes, adding more stress compounds things even further…which makes sense since stress itself causes us physical pain and mental anguish. This often leads us to take less serious actions such as overeating (or undereat), overspending, procrastinating, etc., which only increases the problem.
In short, feeling overwhelmed by debt may cause us to do foolish things that ultimately end up hurting us more than helping us.
So instead of letting yourself go down that road, consider taking charge of your finances and reducing the amount of debt you’re carrying around. One option is to use credit card consolidation. Here are five reasons why you should give it a try.
Does Consolidating Credit Cards Help Credit?
This question actually comes first, which says a lot about how important it is for people to take advantage of their options. After all, most folks who are already drowning in debt don’t usually look toward experts for advice unless absolutely necessary – especially when doing so involves spending hundreds (if not thousands) of dollars on services.
But here’s an interesting thing: While credit card companies tend to prefer customers keeping separate accounts rather than combining them, studies show that consumers with “combined” accounts typically earn better credit scores than individuals whose accounts remain separated.
But wait! Doesn’t this mean that opening additional lines of credit will hurt my credit rating? Not necessarily. The reason being that credit history is divided among different types of accounts, including revolving ones (such as credit cards). So when someone opens new revolving accounts, he/she isn’t creating new credit history at the expense of others.
Instead, the person is simply increasing his total number of open accounts in general, which doesn’t affect anyone else’s credit ratings.
Another misconception is that credit cards lend themselves well to debt management. Actually, no matter what type of account you hold, there’s always risk involved in borrowing money, and credit cards aren’t exempt from this rule. On top of that, creditors generally require customers to maintain larger credit limits on their own bank accounts compared to credit cards.
However, despite these challenges, credit cards still come out ahead overall due to two main factors: First, banks allow borrowers to set aside funds specifically designated for emergencies, whereas creditors usually won’t let you tap into emergency reserves held elsewhere. Second, credit cards usually offer lower interest rates than checking accounts.
All told, credit card holders with healthy credit histories can benefit greatly from credit card consolidation.
Is Consolidation Good Or Bad?
As mentioned earlier, credit card companies typically want their customers to avoid merging their individual accounts into a single line. Doing so creates problems when customers wish to close older accounts. As soon as they begin receiving statements for active accounts, however, they’ll receive letters asking them to continue sending payments via mail.
These communications are meant to ensure that creditors don’t lose track of outstanding balances once customers consolidate their accounts.
The upside to this is that it keeps existing creditors informed about customer activity, allowing them to react quickly if anything goes wrong. A downside is that it puts small businesses’ profits at stake, as they must spend resources handling transactions that otherwise wouldn’t occur.
Another drawback of credit card consolidation is that it requires customers to send in paperwork to prove eligibility. Even though this requirement applies only during the initial period, it can slow down processing times considerably. Last but not least, certain states prohibit residents from closing inactive credit card accounts once combined.
What Are The Disadvantages Of Debt Consolidation?
There are plenty of downsides associated with debt consolidation, but the biggest pitfall is loss of control. When you combine your various accounts, you surrender autonomy regarding how you pay back the borrowed money. Now, you’ll have to decide how long you intend to stick with the new joint account.
If you plan to keep it for a limited time only, then you should expect to see declines in both your credit scores and your personal flexibility levels.
Also, remember that companies aren’t obligated to provide refunds on fees charged for setting up a consolidated account. Some issuers might even increase annual charges or add new late fee schedules.
Finally, if you move away from your old location and stop mailing checks to creditors altogether, you’ll likely miss out on upcoming bill reminders. To offset these risks, make sure to check with your issuer beforehand to determine exactly what to expect upon signing up.
What Are The Advantages Of Debt Consolidation?
When used properly, debt consolidation can indeed save consumers big bucks. By putting together your current accounts, you could reduce your average APR (Annual Percentage Rate) significantly, depending on your situation. Remember, the APR reflects the entirety of expenses incurred throughout the billing cycle, including everything from interest costs to transaction fees.
Since consolidation lowers the total cost, you’ll end up saving more over time.
Furthermore, you may qualify for special offers or discounts. Perhaps your employer provides perks such as free travel vouchers or food coupons that apply towards purchases made through specific credit cards. Other benefits include waived application fees and reduced minimum deposits required to open an account.
Finally, there are some very real psychological perks associated with consolidating credit cards. Most importantly, you’ll gain greater peace of mind knowing that all of your hard work is finally beginning to bear fruit. With fewer worries weighing you down, your mindset and outlook on life will improve tremendously.
With great power comes great responsibility, after all. So weigh your options carefully and ask yourself honestly: Is debt consolidation worth the effort? Only you can answer that.