If you’re overwhelmed by high-interest credit card debt, and your balances are getting out of control, credit card debt consolidation may be the right solution. The financial impact of the coronavirus pandemic has led to some consumers using their credit cards to pay for living expenses they haven’t been able to afford otherwise. According to Experian, consumer credit card debt balances averaged $5,315 in 2020. That number goes even higher for younger individuals. That can add up to a lot of interest over time if there is no focus on repayment. Credit card consolidation can work well if your credit is good and you are committed to paying down the balance of your consolidation. One of the biggest benefits of consolidating high-interest debt from multiple credit cards is you will be left with one monthly, easier to manage payment. If disciplined, focusing on one monthly payment can help you tackle a high balance even faster.
Consolidating credit card debt with a 0% balance transfer promo
If your credit is good enough to qualify for a 0% credit card offer, then credit card consolidation can be a smart move. The average credit card rate is currently about 16%. Taking advantage of a 0% balance transfer promotion to consolidate higher-interest credit card debt may buy you the time you need to chip away at your balance without amassing additional interest. Your main goal in taking advantage of a 0% balance transfer card should be eliminating the interest rate applied to the balance to give yourself time to apply more to principal each month. If you can commit to paying more on your principal, you can reduce the length of time it takes to pay off your debt. If you pay off the balance before the 0% introductory period ends, you can actually avoid paying interest on the transferred balance. It’s a goal to work towards.
Some credit card balance transfer offers come with balance transfer fees that can add up. Always check before you commit to a transfer. Look for a card with no transfer fee if possible. For example, Benchmark Federal Credit Union’s VISA® Platinum Credit Card features 0% APR* for 12 months with a $0 balance transfer and $0 annual card fees. Plus, Benchmark offers fixed rates as low as 8.9% APR* after the 0% intro rate expires. That’s much lower than the average credit card and you benefit from no transfer fee or annual fee.
5 tips for credit card debt consolidation
- Evaluate your spending.
- Create a budget that prioritizes necessities.
- Once you consolidate credit cards focus on debt payments.
- Create a plan to avoid adding on additional credit card debt while you are paying the existing debt. Once you pay down debt you can focus on other goals.
- Seek financial counseling if you need it. If you feel you’re in over your head with debt, it might be the right time to speak to an expert who can help you get back on track. Start at your credit union, where the priority is always on the member. Learn more at benchmarkfcu.org.
Pros & cons of consolidating credit card debt
There are several pros of credit card debt consolidation. Combining multiple credit card balances into a single monthly payment can simplify your finances, and ideally, it can help you pay down debt faster and more efficiently. If you make regular on-time payments, it may also help improve your credit score as the debt is repaid. Again, it is best for people who have good credit and can qualify for a lower interest rate. The most evident benefits of a credit card consolidation are securing a lower interest rate and a payment that fits your budget.
The main con of credit card debt consolidation can be the danger of incurring new credit card debt as you pay down your existing debt. Another could be the high fees involved in some balance transfers. Finally, every low rate introductory period will eventually come to an end. You need to be clear on what the low rate will convert to. When shopping for a balance transfer card, in addition to all rate information, consider all of the costs including upfront fees. It’s also important to keep in mind that debt consolidation is not debt elimination.
Other debt consolidation options, such as personal or home equity loans, are available as well. Whichever option you choose for consolidating credit card debt, be sure to have a disciplined plan to pay it down.
*APR = Annual Percentage Rate. Rate subject to change & based on an individual’s credit history. 0% Intro Rate is valid for purchases & balance transfer from other institutions within 90 days from card opening. The 0% rate will be in effect for 12 months from the first qualifying transaction within the 90 day period & after 12 months the rate on all unpaid balances will convert to the rate member qualified for at card opening. 0% APR promotional rate is only valid on new VISA® Platinum Cards & subject to expire without prior notice.