5 Important Things You Should Know about Credit Card Consolidation

As the word implies, debt consolidation is the act of taking out a single loan or debt and using it to pay any outstanding debts that you might have. People often have many reasons to consolidate their debt, and they will range from taking advantage of a lower interest rate to simply taking advantage of the convenience that a single loan brings. One of the most popular examples of this form of financial management is credit card consolidation, wherein you pay off all of your credit card balances.

It is so tempting to just consolidate your credit card debt into one card or pay off your balances by taking out a loan. Before you do this, however, you should be aware of the various pros and cons of credit card consolidation. This article aims to give you enough information to determine whether credit card consolidation is the right move for you.

1. You Need a Good Credit Score

It’s a little ironic isn’t it that you need a good credit score to try and fix your credit in this manner? You want to better manage your finances so you take a closer look at credit card consolidation as a tool that you can use. However, the reality is that it is not for everybody because taking out a credit card consolidation loan means that you have to qualify for it. Many firms will require you to have a good credit score. If your credit report shows some missed or late payments in your history, it might cause a red flag. Either you will be unable to qualify for a consolidation loan, or you might qualify but with a higher interest.

2. It Might Require Collateral

One of the dangers of credit card consolidation is that you might end up transforming what is originally an unsecured loan into a secured one. If you are taking a large enough loan to pay off several credit card balances, the financial company or the lender will probably require you to pony up some form of collateral. An example of this would be property that you own such as your home. By consolidating your debt, you are opening yourself to more risk.

3. You Can Do it Yourself

You can actually do credit card consolidation without involving consolidation programs or taking out a consolidation loan. The solution is to apply for some new credit. Several credit card companies will allow you to transfer existing balances from your older cards into the new one at a lower interest rate. If you are going on this route, do check the offer period as interest rates may suddenly increase after the first year.

4. Using a Credit Card Consolidation Program Has its Advantages

If you are struggling to keep up with your payments on multiple credit cards, credit card consolidation might have its benefits for you, the primary one being you would only have to think of making a single payment every month. This is much easier, and it gives you peace of mind. This way, you don’t have to worry about keeping up with the stack of credit card statements waiting to be paid on various due dates. Consolidation companies also try to get rid of late fees and over the limit fees, which add up to a pretty penny. You can even sign a power of attorney and allow the consolidation company to handle the calls coming from a collection agency.

5. The Danger of Being Scammed

You have to be careful because there are credit card consolidation companies out there that take advantage of people who are in debt. They are basically nothing more than scams that are trying to make a quick buck. If you decide to consolidate, make sure that you do your due diligence and check the reputation of the company that you will be using.

Have you ever tried credit card consolidation? How did it go?

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  • I actually put one of my credit cards into a home refinance nearly a decade ago. After I got married, we put two more of our credit cards onto a HELOC. We are still paying on both, and I cringe at the thought that I am still paying for all of my young/stupid college age purchases (CD’s, going out to eat, gas, etc.). I would only suggest consolidating if you are on a strict pay off plan that you are determined to stick to.

  • Ouch on putting the CC debt in the HELOC. Never transfer unsecured debt into secured debt… However, it looks like you learned your lesson.

  • Reka /

    Thanks for sharing the useful information, from now on I have to take care about these things as well, I haven’t heard about these risks before.

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