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Should I Consolidate My Credit Card Debt?

Should I Consolidate My Credit Card Debt?

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This article was last updated Jul 16, 2018, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Credit card debt tops $1 trillion with an estimated 122 million Americans carrying an average debt of $4,453, according to a study done by MagnifyMoney. (Disclosure: MagnifyMoney is owned by LendingTree, which also owns CompareCards.)

If you’re one of them, you may be considering consolidating your credit card debt. You can do this by utilizing a new credit card to complete a balance transfer — we’ll explain how later in this post.

Consolidating credit card debt can provide many benefits, including lower interest payments and the potential to pay off debt quicker than if you didn’t consolidate it — but there are also some drawbacks to consider if you don’t manage your debt consolidation responsibly.

Here are the benefits and drawbacks of consolidating credit card debt:

Benefits of consolidating credit card debt

  • Lower interest rate or no interest for a given time period: Odds are, if you carrying credit card debt, it’s on a card charging you high interest. Consolidating that debt to a card offering a lower interest rate, or a 0% intro APR period, can save you a decent amount of money.
  • Simple payments: Instead of paying several credit cards, you’ll be able to make one payment. You may be less likely to make late payments after consolidating debt, since you’ll have one payment compared with, say, three payments with different due dates.
  • A potentially higher credit score: Consolidating debt has the potential to increase your credit score by lowering your utilization rate — which is an important factor in your credit score. Utilization is the amount of your total credit you use divided by your total credit limit. For example, having three cards with credit limits of $1,000, $2,000 and $5,000, respectively, means your total credit limit is $8,000. If you owe a total of $5,000 on all those cards, your utilization would be high at 62.5% ($5,000/$8000). If you open a balance transfer card and are approved for a $4,000 credit limit, your utilization drops to 41.67% ($5,000/$12,000).

Drawbacks of consolidating credit card debt

  • Temptation to spend more due to an additional line of credit: If you consolidate credit card debt to a new credit card, you will receive a credit limit with that new card. This increases your total available credit across all cards, and may pose an issue if you have trouble overspending.
  • Possible fees or limited-time offers: Depending on what debt consolidation option you choose, there are various terms you have to follow in order to get the most benefit from debt consolidation. For example, balance transfers require you to make transfers within a certain time period to qualify for the 0% intro APR period. If you transfer after the time period, you lose out on the offer and don’t really save money, so read the fine print.

How to consolidate credit card debt with a balance transfer

A balance transfer is when you transfer debt from one card (typically with a high APR) to a new card that offers a 0% intro APR period for balance transfers. During the length of the 0% intro APR period, you won’t be charged interest on your transferred debt. Just keep in mind you can’t transfer debt between cards from the same bank. Most balance transfers come with a balance transfer fee that can range from 3% to 5% of each transfer. Overall, completing a balance transfer can be a great way to consolidate credit card debt, especially if you transfer a balance to a card offering an intro $0 balance transfer fee.

Pros of a balance transfer

  • Avoid high interest charges: If you currently have debt on a credit card that has a high APR, transferring it to a balance transfer card with a 0% intro APR period can save you money on interest payments.
  • Facilitate payments for various credit cards: If you have several credit cards with debt, it may be easier to consolidate your debt onto one balance transfer card. This way, you will only need to make payments towards one card instead of several — assuming you don’t rack up new charges on the other cards.
  • Many balance transfer cards offer 0% intro APR periods for purchases, too: While you should try to limit your spending after completing a balance transfer, if you need to charge certain purchases like recurring electric and cable bills, a 0% intro APR period for purchases can come in handy. Make sure to review your cardmember agreement to see if your card offers this feature.

Cons of a balance transfer

  • Balance transfers can’t be done between cards from the same bank: That means if you have debt on two cards from Bank A, you can’t transfer that debt to a third card from Bank A. You will have to transfer the debt to a card from another bank.
  • Good or excellent credit is typically required: The top balance transfer offers require you to have good or excellent credit and if you have less-than-perfect credit, you may not qualify.
  • There may be a balance transfer fee: Many balance transfer cards charge a balance transfer fee that’s a percent of the total amount you transfer. This fee is typically 3% to 5%, but is often outweighed by the amount you save in interest. Skip the fees if you qualify for one of these cards with intro $0 balance transfer fees.
  • There’s a limit on how much debt you can transfer — and you won’t know how much until after you apply: Issuers typically set a limit on how much debt you can transfer, beyond simply stating it can’t exceed your total available credit limit. They may add that it can’t exceed a certain percentage of your credit limit. And since you don’t know your credit limit until after you’re approved for a card, the exact amount you can transfer is unknown prior to applying. For example, if you have a total of $7,000 in credit card debt, but are approved for a balance transfer credit card with an $8,000 credit limit and terms that state balance transfers can’t exceed 75% of your available credit limit, you can only transfer up to $6,000 of your debt. That’s assuming your full credit limit is available, meaning you don’t have a balance from new purchases.

Helpful tips for consolidating credit card debt with a balance transfer

  • Complete your transfer within the qualifying time period: Most balance transfer cards require you to transfer debt within 30 to 60 days from account opening, or else you miss out on the 0% intro APR period. So, try to transfer any balances within the given time period.
  • Consider cards with intro $0 balance transfer fees: As stated earlier, many balance transfer cards charge a fee per transfer, but you can find cards with $0 intro balance transfer fees. These are a good option if you don’t want to pay to transfer your balance.
  • Watch out for deferred interest: Some credit cards may state in the fine print that if your balance is not paid in full by the end of the 0% intro APR period, you will be charged all the interest you accrued starting from the date of your transfer. While this is uncommon with the major credit card issuers, it’s something to watch. Make sure you read the terms of the balance transfer offer.

If you decide to complete a balance transfer, check out our guides on how to complete a balance transfer with major issuers: American Express, Discover, Capital One, Chase, Citi, Bank of America and HSBC. And, read our guide on getting out of debt with a balance transfer here.

What about cash advances?

We don’t recommend consolidating credit card debt by taking out a cash advance, since the terms aren’t ideal. You’re typically charged a cash advance fee, an ATM fee, and high interest rates starting on the day you withdraw cash. Overall, cash advances have more drawbacks than benefits and can lead you to fall further into debt.

Bottom line: Should you consolidate your credit card debt?

Ultimately, it depends on your financial situation. As with most potentially money-saving practices, there are several possible drawbacks (as noted above). But if you consolidate your debt and practice responsible credit behavior, you may see benefits that may include no interest charges for a given time period, an increase in your credit score, and achieving a $0 balance.


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