Is Consolidating Debt onto One Credit Card a Good Idea?

Consolidating debt on a single credit card has both advantages and disadvantages. It might be a good idea in some cases, but not in others. Consider this information about credit card debt consolidation before you use this method to save money on your debts.

Why transfer balances?

One reason why people choose to transfer balances to other credit cards is to save money on interest. Zero percent APR offers make consolidating debt to another card very appealing.

Another reason why people do this is because the other card may have a higher limit. A $3,000 balance looks better on a credit card with a $7,000 limit than it does on a card with a $5,000 limit.

In both of these cases, credit card consolidation might be a good move. There are some risks, however.

The risks in consolidating debt on credit cards

Balance transfers, even if there is a zero percent interest rate, can incur fees. This can be a small percentage of the amount transferred, usually 3-5%.

Most low interest rate offers are for a limited time only. If you do not have the funds to pay off the entire balance by the time the rates go up, you will have to start paying on the higher interest or move the credit card balance again. Moving the balance again will only make you look risky to lenders. Opening a new account just for a better interest rate can also hurt your credit score. Doing this multiple times or doing it when you wish to apply for a loan will hurt your chances of getting approved.

The other temptation is to close the accounts with empty balances. You should at least wait until the high revolving balance is paid off to do this. Otherwise, you available credit and revolving debt ratio will look unfavorable. It is also a bad idea to close your oldest accounts. If you do decide to get rid of some credit cards, cancel the newest ones only. Not using old cards or closing the accounts can shorten your credit history.

Another risk is overspending again. Not owing anything on a certain credit card can make some people want to go shopping. While you should use your credit in moderation, using more than 50% of your limits doesn't look good to lenders. This is true even if you pay off the entire balance every month.

Is it a good idea or bad idea?

Ultimately, the best thing to do is pay off your high revolving balances as soon as possible. If you have enough income to pay off the debt by the time the low balance transfer rate is expired, it might be a good option.

You should also note that smaller balances that are less than 50% of the limit on several cards is better for your credit rating than a single high balance that is above 50% of the limit.

Consider the facts above, and only try this method of consolidating debt if it will save you money and get your balance paid off, while keeping your credit appealing to lenders.






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