I think I should consolidate my credit cards. Is this a good idea? |
By Laura Gutmann on August 10, 2010
.jpg.aspx?width=75&height=75) For those who are drowning in bills from several credit card companies per month, consolidating debt into one line of credit with a lower interest rate can be a good idea. However, you should be well informed about the pros and cons of shifting over your debt before you make a decision:
The Good:
- Keeping track of spending on one credit card is easier than keeping track of several lines of credit. Limiting your purchases to one card will also help you focus in on making responsible spending choices.
- You can try and find a card that will give you rewards and benefits that you hadn’t previously received. For example, maybe you would benefit from consolidating all of your spending onto a card that will give you free airline miles, other travel benefits, or cash back on purchases.
- If you are behind on your bills and paying large interest charges, you can look for a card that has a special introductory APR, which can be as low as 0% for a period of time. That will give you a few months to catch up on your bills while avoiding getting deeper into debt.
The Bad:
- However, many credit card companies do charge a balance transfer fee – you should ask how much this would be. Sometime it’s a percentage of your debt – so if you owe a large amount of money, this fee could be hefty.
- Some lenders will frown upon frequent credit card consolidation and jumping from bank to bank – they’ll see that you weren’t able to fulfill your commitment to your original credit card company.
The Ugly:
- Often, a low introductory APR will increase after about six months – and your new interest rate could be higher than ever before. After the introductory period is over, if you still have significant debt, you could find yourself in deep trouble. Again, it’s important to read the fine print and ask credit card companies questions about what you are signing up for.
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