Credit cards come with a number of benefits, and while they can often pile on debt at an incredible rate, they’re an integral part of growing your credit score, as well as learning everything there is to know about financial management.
In fact, a credit card is the one true test of your skills when it comes to handling money, as you’ll always have a budget to work with, and with so much debt piling on, it’ll take some masterful expense management to get things running smoothly.
Of course, many Americans have multiple different credit cards, which can make this process that much more complicated, as you’ll be juggling the different benefits every card has to offer, all the while keeping track of the balance on each one, as well as what you owe the credit card company.
Thankfully, with a process like credit card consolidation, you can combine all of your credit card debt into only one, which also means making a single monthly payment, rather than several to different credit card companies.
This may also help with managing your monthly utility bills, as you’ll have less to worry about.
Pros and cons
Due to the nature of consolidating, it comes with a number of advantages compared to having multiple debts across several different credit card companies, which is not to say it’s perfect, or without a flaw.
In general, most people who use credit consolidation do it to reduce the number of payments they’re managing, reduce their interest charges and just overall shorten their journey towards a debt-free future.
However, nothing is perfect, and credit consolidation comes with one major downside, that being that it’s practically useless on its own.
Consolidating debt that you’re unable to pay off will not help your current situation, and you may find yourself stuck in place, kicking an empty can around.
Not just that, but consolidation might even negatively impact your current situation if your former credit card accounts are still open, which is particularly true for those that failed to repay their debts even after consolidating.
By doing this, you’re simply charging all your old cards while also paying the consolidation fee, which may lead to even greater amounts of debt than you may have had before entering a consolidation agreement.
Make sure to properly understand all of the terms before committing, so take your time with the research.
How you can do it
Generally, there are 3 ways to consolidate your debt, those being through a debt consolidation loan, a balance transfer, or with a management plan that will help you slowly but surely remove all the debt you’ve piled on.
With a debt consolidation loan, you’re basically compiling all of your current credit card debt into a single, unsecured loan, which you’ll then use to make a single monthly payment instead of several different ones with different interest rates.
Of course, you won’t run into the best option right away, and it’s perfectly fine to shop around a bit and weigh your options, and you can even contact your current bank to see if the terms they offer sound attractive to your current situation.
If the lender approves you for a loan, you’ll then use it to pay the rest of your outstanding debt, setting your credit card balances back to 0, with some lenders requiring you to close those cards immediately after.
On the other hand, with a balance transfer, what you’ll do is move all of your credit card balances to a completely new credit card, which is basically what a consolidation loan serves to do.
Much like with any finance-related endeavor you make, things will be much easier if your credit score is favorable, although you probably wouldn’t have gotten yourself in this situation if it was.
At times, this method can come with a 0% interest rate, which is incredibly favorable even if it’s for a short period of time, or until the introductory rate on the new card is over.
Debt management plan
Finally, with a debt management plan, you’ll be combining all of the advantages of the previous two without any of the downsides, with the main selling point being that this doesn’t require a good credit score.
If the DMP looks like a reasonable option to your financial advisor, it may be for the best to go with it, at which point you’ll begin making the monthly payments to the agency handling your DMP, which will then direct the money to your credit card company.
In the process, your credit card accounts will be closed, completely ridding you of any debt you may have amassed, and this process can sometimes take under 4 years due to the extremely low-interest rates that creditors offer for DMP.
Due to it being cancellable at any time, DMP is also much less risky than the previous 2.