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Having too much credit card debt can make your situation more stressful. In turn, you may try to find alternatives that may free up some cash monthly, as well as get rid of your debts quicker. One option many are turning to is consolidating their credit card bills.
Here is a look at when you should do it:
If you have high interest rates on one or more cards
If you have a good credit score, there’s no reason you should pay high interest rates. Instead, look for an affordable loan that can consolidate your debt onto one account. By doing this, you could save some money and pay off your bills quicker. For example, if you are paying on a credit card with a balance of $5,000 at an interest rate of 15 percent, and you can receive a loan for that amount for 8 percent, you almost halve the amount of interest you will have to pay. As a result, it will allow you to tackle your principal more with each payment, thereby allowing you to pay off the bill faster.
If you want to lower your minimum payments
Many times you can save cash monthly by consolidating. If you are making payments to multiple creditors, your amounts will vary monthly. Meanwhile, by rolling all of this debt into a low-interest loan, you will only have to make one monthly payment, which could save you money.
While credit consolidation does offer some benefits, it’s not for everyone. Here is a look at some reasons why you shouldn’t consolidate.
Don’t consolidate without first speaking with your lender
If your account has a high interest rate, speak with your creditor to see if they can lower it. They may be willing to lower it as a way to keep you as a customer. Your goal first should be to see if your lenders can offer more favorable terms; if they cannot, then think about consolidation.
The reason for this is simple. Many do not know that when you transfer a balance from one creditor to another, that new lender may request you close the old account. This can affect your credit score negatively, as one of the factors in determining your score is length of accounts. Therefore, keep this in mind before doing it.
If you can’t afford your monthly payments
It’s easy to fall behind on bills, and if you have, you might be tempted to transfer your balances to give you some time to catch up. The only problem with this is you are trying to solve a long-term problem with a short-term solution. If you have problems making payments, speak with your lender to see if they can help. Additionally, you can consult a credit counselor, who will help you develop a budget; that way you can develop good financial behaviors. You could also contact a debt settlement firm for help lowering your debt.
To take advantage of balance transfer rates
Many credit card issuers offer teaser rates, which is where they promise a lower interest rate if you transfer your balances to them. The only problem with this is the teaser rate is temporary, and depending on your credit, after that term expires your interest rate will increase. While these are not bad programs, be sure to understand all of the terms before committing to one.
Rolling all of your debt into one payment can be beneficial if it‘s the right solution for you. By developing a budget and understanding your options, it can help you determine whether this is the best course of action for you take.