Six Good Reasons to Consolidate Credit Cards

By on | Credit Card Debt Consolidation Information.

With more than 5 billion credit card offers landing in the mailboxes of U.S. households each year, and a monthly average of six offers per household, it is not surprising that so many Americans are submerged in debt. Hefty finance fees and interest charges that accumulate over time compound the misery of fiscally-overextended consumers trying to cope with minimum monthly payments and ballooning balances. A valuable personal finance tool known as credit card consolidation provides this segment of the population with financial breathing room and prevents them from sinking further into debt. Since this debt relief method may not be the solution for everyone, it is important that consumers weigh the pros and cons to ensure that credit card debt consolidation is monetarily beneficial to them.

Debtors will find credit consolidation to be advantageous in numerous respects. The most attractive features of this debt-reduction method are as follows:

1. One account, One Bill

When credit card payments are split and spread out, the total amount of the debt is not easily ascertainable. A consumer may, for instance, have outstanding balances on six different credit cards and therefore have to issue six separate payments each month. Those who choose to consolidate credit cards will be granted the opportunity to combine their accounts into a single bill and be required to make only one monthly payment. This is a simplified, time-saving and stress-sparing payment method. Furthermore, since there are fewer bills, consumers are less likely to incur late fees.

2. Lower Interest Rates

Credit card consolidation is particularly appealing when it offers the applicant a lower interest rate than the average of his old cards’ rates. If a debtor has cards that feature low rates, he or she can exclude them from credit consolidation. A borrower may lock in a lower interest rate by applying for credit card consolidation, which would combine his or her debts on the existing high APR (annual percentage rate) cards into a low APR card, or even better, transfer the balance to a zero APR card. Such a move is bound to save the borrower a considerable sum of money. Another credit card consolidation option available to consumers is a collateral loan or personal signature, in which high-interest credit card bills are converted into one loan boasting a more favorable interest rate. In view of the fact that current interest rates are at a historic low, it is an ideal time for debtors to obtain a credit card debt consolidation loan. The interest rate on a credit card consolidation loan through a conventional lender may depend on a borrower’s credit rating. To qualify for a lower interest rate, consumers must have a high credit score. One advantage of selecting a low-interest consolidation loan instead of a low-interest credit card is that with the latter, borrowers will be tempted to make purchases and will thus increase their already burdensome credit debt.

3. Lower Monthly Payments

Credit card consolidation enables debtors to reduce their monthly payments and consequently saves them a significant amount of money.

4. Enhanced Credit Standing

Consumers who are consistently late in submitting their credit card payments pay the piper when it comes to their credit rating. By reducing consumers’ debts, credit consolidation offers applicants the chance to improve their credit score. Upon closing their previous credit card accounts and consolidating their debt, borrowers will notice an improvement in their credit score.

5. Reduction In Annual Fees

Another convincing argument for credit card debt consolidation is that multiple credit cards generate substantial annual fees. Although the annual fee on many credit cards stands at $20 or $25, a good number of credit cards carry annual fees as costly as $250. Transferring the outstanding balance on current credit cards to a card charging no annual fee is only profitable if the consumer plans to utilize the card for the year. Borrowers should not pursue credit consolidation if the card’s APR skyrockets immediately following an introductory low or zero annual rate lasting six months.

6. Money Back Offers

Through credit card consolidation, applicants can earn some money upfront. Because of the stiff competition present in the credit card market, some companies offer to give consumers money back when they agree to transfer the balances on their credit cards to them. For instance, a borrower might undertake a credit card debt consolidation with a credit card offering 5% debt forgiveness.