Dos and Don'ts of Consolidating Your Credit Card Bills |
By Kari Johnson on December 27, 2010
.jpg.aspx?width=75&height=75) If your credit card bills are piling up and your credit score is waning, you may have come across the phrase “consolidate your credit card bills.” If you are bogged down by piling interest and creditors, this can be a plausible option for debt relieve. While deciding if you should consolidate, or what form of consolidation will work best for you, there are a few things to keep in mind.
Don’t bother consolidating two or more cards into one if they have the same interest rate. The point of credit card consolidation is primarily to save you money. While this method might make things simpler, it is not worth any fees incurred if you are paying the same amount of interest.
Do shop around before settling on a company to help you consolidate your credit card bills if you decide to use one. Once you have selected a company, be sure to check up on their reputability and reliability.
Don’t take out a home equity loan unless you are sure you can pay it back. Interest on the loan is tax-deductible, which would usually make it a good choice, but this is essentially using your home as collateral. Consequences can be devastating if you end up defaulting on payments.
Do look for credit cards or loans with a zero-percent interest rate. Without interest, debt will be far easier to handle and eventually pay off. Also, if you are simply transferring credit bills from one form to another, find a form to use that is tax deductible (like the home equity loan).
Don’t transfer credit card balances to other cards that don’t have a cap on transfer fees. Even if the percentage is low (which it usually is, at about 3-4%), it adds up quickly if you are dealing with a lot of debt and there is no cut off. For instance, if your debt is as high as $10,000, it could easily cost you three to four hundred in transfer fees if there is not a cap on the fee.
Do look at all of the options before deciding on a way to consolidate your debt. Not every method will work for every kind of debt or every person in debt, and even when they do, there is usually an option that is better than the rest. Choosing unwisely could be even more detrimental to your credit than your current debt.
This is not an exhaustive list of things that you should be sure to do and not to do while consolidating your credit card bills, but these are among the most important. While consolidating your credit card bills is a good method for simplifying your life and lowering your debt, it can be a devastating blow if done incorrectly. Keep these things in mind and do your homework when looking to consolidate your credit card bills and you will be in much better shape. |
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