Should I consolidate my credit cards?


Are you currently in the middle of a debt crisis and is struggling to find a way to pay them off? Or do you just want to simplify your monthly payment system while aiming for a lower interest rate? Whatever your goal is, eliminating debts is not an easy task. Your options are often limited by your financial situation and may even be narrowed further, depending on the lending company you are planning to apply to (that is, if you are even considering it). In choosing the steps to take, you must be properly informed of its every aspect and implications. It is your future that may be at stake so you need to have all the help you can get, you have to be careful, or you might find yourself facing the dreaded B-word.

What is Credit Card Consolidation?

When it comes to paying off debts, one option that you can explore is consolidating your credit cards. Credit card consolidation is simply put as the merging or joining of debts from numerous credit cards into a single or couple of credit cards.

Why Should I Consolidate My Credit Cards?

Consolidating credit cards provides many advantage to creditors. One, is that there is no minimum or maximum amount of loan and fees. Consolidation is usually free and anyone can apply and be accepted for a consolidation loan regardless of the size of their debt. Credit card consolidation also makes a creditor’s monthly payment easier to manage with only one bill and one lender to mind. In addition to that, the monthly payments can be flexible. A lot of lending company actually offers different and more convenient options in repaying loans since these plans, as Zimmerman have mentioned in 2005, are “designed to meet the different and changing needs of borrowers”.

Another good reason to consolidate your credit cards is that you may end up with a lower interest rate than when paying off your debts individually. This happens often for student borrowers. Moreover, students who qualified for a consolidation loan are sometimes given a grace period of up to six months before their repayment starts.

In general, credit card consolidation presents a second chance for creditors to improve or rebuild their credit rating while avoiding additional costs at the same time.

Is Credit Card Consolidation the Right Option for Me?

Well, not every debt situation is suitable for credit card consolidation or any other option, for that matter. That is why it is highly suggested to consult with a financial expert (preferably someone not associated with a particular lending company since they might give you a biased opinion) first before making any major decision. However, it is wiser to avoid relying on your financial adviser completely. It is still better to evaluate the things needed to be considered in decision-making for yourself.

3 Reasons to consolidate your credit cards and other debt

1. I would like to reduce the total interest that I pay the bank.

If this is your primary goal, congratulations, you are thinking smart! Other than comparing interest rates on loans to payoff your cards, you will also need to compare the APR and term of the loan. Often, the shorter the term is, the better the interest rate but the higher the monthly payment.

2. I would like to lower my monthly payments.

If you struggling to pay your monthly credit card, auto loan, or student loan payments and want to lower your monthly payment, there are several methods you can use to determine which to consolidated.

3. I would like to pay a single monthly bill.

If you are tired of remembering to pay multiple bills or find it a pain to balance paying them on different dates which don’t always match when you get paid, then consolidating your credit cards and loans into a single payment is definitely more convenient. Warning: always check your current interest rates because a personal loan won’t always give you a lower interest rate.

3 Steps to consolidate your credit cards.

1. Figure out what monthly payment you can handle.

Don’t be too easy on yourself, but be realistic. You don’t want to miss any payments because doing so will hurt your credit. Here are the other factors that impact your credit score.

2. Consolidate all your credit cards that have higher interest rates.

Compare the interest rates of each of your credit cards to the interest rate of a personal loan that you can get. To check your interest rate, you can apply to any of these personal loan companies. Most all will only do a soft credit check which won’t impact your credit score.

TIP: Don’t feel that you have to consolidate all your debt if you take out a loan. If only 1 of your credit cards has a higher interest rate than the best interest rate you can get on a personal loan, don’t get talked into consolidating both credit cards if your goal is to pay the least interest.

3. Determine the right term (time period) for your loan

Based on the total amount you can afford to pay each month, adjust the loan term (1-5 years) to match that monthly payment. NOTE: Typically, the shorter the loan term the lower the interest rate.


Brian’s “reasonable” Monthly Payment: $300
Brian can get a personal loan at a 13% APR

Credit Card Number Credit Card Monthly Payment Credit Card Interest Rate Consolidate
1 $100 15% YES
2 $140 12% NO
3 $180 18% YES

Based on the example above, Brian can get approved for a loan at 13% APR which is lower than credit cards #1 and #3. Brian does not consolidate loan #2 because it has a lower interest rate. Therefore, he will still pay the min of $140 per month. That means Brian can afford $160 more per month for a loan payment.

Brian then consolidates loans $1 and #3 into a single loan and he chooses a term (usually 1-5 years) that results in a monthly payment of around $160. This way he reduces the most amount of interest he pays while getting a loan payment he can afford.

Bottom Line

Every move you will make towards debt repayment is crucial. Unless you want to be buried under an even higher pile of debts, you must know and inspect all angle there is about the options available in the table. Some circumstances may be fit for credit card consolidation while others may not. For those who are not eligible for it, do not panic for there is still hope for you. To avoid bankruptcy, you can actually start selling your properties, borrow money from family and/or friends or restructure your mortgage. While you are at it, try to cut back on your expenses especially if you are a big spender. Learn to discipline yourself because as cliché as it may sound, prevention is still and will always be better than cure.

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