It can be very wise to get credit card consolidation if you are deeply in debt. The average person today has $1000s in credit card debt. Obviously credit card debt is the worst kind to have, because these cards are designed to keep you in debt. This is because they are compounded monthly. Therefore, if you are only making your minimum payments, it can often take 8-9 years or more to get out of debt-even if you don’t spend another dime with the card.

Therefore, if you only make the lowest possible payment every month, you will likely not see much progress because you are really not lowering the total amount much. That’s when a lot of people turn to bankruptcy, because they think it’s an easy way out. Don’t make this mistake. If you are trying to get out of debt, credit card consolidation could be your best bet.

Credit Cards

So what is credit card consolidation?

This is where you combine multiple credit card payments into one single payment. There are 3 main benefits of doing credit card consolidation. The first is that it makes paying off your bills easier. After all, now multiple payments are combined into one, and therefore it is much harder to miss a payment.
For this reason, it can actually help your credit score simply because it helps you stay more organized. Often times the reason people miss a payment is that they simply forgot about it. Therefore, credit card consolidation should help you avoid this mistake.
Credit card consolidation also usually offers better interest rates. This will help you pay down your debt faster, although it won’t have much of an impact on your monthly payments. Finally, as mentioned, it can help your credit score. Besides making fewer late payments, you will also close out have fewer financing accounts open. Lenders hate giving money to people who have lots of credit cards open, so if you ever need financing in the future, you are more likely to get approved.

There are 3 ways of getting credit card consolidation. Here they are, along with a description of each:

Credit Card Consolidation

This is one of the more popular strategies, because of the ease of balance transfers today. Basically, all you do is transfer the balance of multiple cards into one single card. In many instances, credit card firms offer deals for doing this, such as 0% interest for the first 6-12 months. The reason is obvious-they want you as a customer.
Just make sure you read the TOS.
Sometimes there is transfer fees involved that the company doesn’t tell you about. Unless you read the small print, you would not find out about them. Often times these fees are quite expensive.
Also, the terms of service will tell you what you can expect the future interest rate to be. In some cases companies offer great introductory rates, only to raise the rates through the roof once the introductory phase is over. Therefore, finding out the long term rates is very important. Make sure you know the length of time the introductory rate goes on for, and in most instances it is 6-12 months.
In addition, when reading the TOS, see if there is a transfer limit. In some cases companies will offer the low rate up to a certain amount. In other instances, the transferred money gets the low rate but everything you spend besides the initial balance gets the higher rate. Finding all credit card consolidation information out beforehand is very important.

Loans

Getting a loan is also a very popular consolidation strategy. These will usually have a lower interest rate than what your credit cards are at. The lender will basically give you enough money to cover your credit card debt. You then have to pay them back at whatever the agreed upon interest rate is (which is hopefully less than the original).

The main premise behind this is that your debt gets eliminated faster. Of course, there is no introductory low rate, like credit card companies would usually offer you. However, the long term rate might actually be lower than what you’d get with a credit card. Therefore, don’t get fooled by the “introductory rates” advertised on TV by credit card companies.

Consolidation companies

These firms do not lend you money. Instead, they will attempt to negotiate a better interest rate for you with your credit card company. Once they agree upon a rate, you will pay them a single monthly amount, which they in turn pay to your credit card company. In other words, they are essentially your money manager.

But this is usually not your best option.
Using a consolidation program is generally not worth it for the simple fact that these companies charge a monthly fee to manage your money for you. This can often nearly negate the benefits of having a lower interest rate in the first place. This is one of the main reasons that 75% of people drop out of their consolidation programs before they are done. Only use this option if the first 2 methods didn’t work for you.

How to determine if consolidation is right for you

Now that you know what your options are, you have to evaluate whether consolidation is going to work for you. Here’s what you do: jot down the interest rates on each of your credit cards. Then, find out what kind of interest rates you can get on a new credit card or loan.
From there, close out the credit cards that have a higher interest rate than what the consolidation offers. You do this either by transferring the balance or using the loan money to pay them off, depending on which of the above options you chose. You can keep the credit cards open that already have a lower interest rate.

Conclusion

Credit card consolidation could be a wise decision for you, depending on your circumstances. The important thing is that you only do it if the new interest rate will be lower than the original. Just make sure you carefully evaluate your options and see if this would benefit you or not if you choose credit card consolidation as your option.