Do you have a lot of credit cards in your wallet?
Over 190 million Americans have credit cards. The average cardholder has at least 2 cards, and usually more.
If you have multiple cards, it may be time to consolidate them. It’s not always easy to get rid of older cards, but if you do find yourself with too many different ones and want to simplify things a little bit, there are some good reasons why you might want to take the plunge.
Why consolidate credit cards, and how do you do it? Read on to find out!
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Should You Consolidate Credit Cards?
To help you decide if you should consolidate credit cards, consider your financial situation. For example, if you have excellent credit and are planning on getting a home mortgage soon, it may be a good idea to consolidate your bills into one loan. This will help you qualify for better rates.
Additionally, consolidation can also make it easier to pay off loans because all your payments will be made through a single source rather than having to divide them across several individual accounts. As well as the financial benefits of consolidation, you’ll also find that it can help with emotional motivation as well.
If you’re juggling multiple bills and you have to make several payments each month, it can be hard to keep track of how much you’ve paid off. Another perk of consolidating your debt is that if you have a loan that’s coming up for renewal, you might be able to get a better deal by consolidating it.
If you have several debts with high-interest rates, such as payday loans or medical bills, then a debt consolidation loan could reduce what you pay out each month. By saving on interest, it’ll be easier to save up money for a mortgage down payment. It can also help those who simply don’t want more consumer debt (e.g., people considering bankruptcy).
Credit Card Consolidation Timing
When it comes to finances, timing is the key to success. Even though consolidating credit cards can be a Savvy Financial move, it can cause more harm than good if you do it at the wrong time.
If you’re up to your eyeballs in debt, repairing your credit score should be your first priority. As long as you have some money saved or secured in an emergency fund, then it’s probably a good time for getting the ball rolling with consolidation.
For example, if you already have a home mortgage and car loan and want to consolidate your credit cards but don’t qualify due to bad credit, there are other ways of lowering interest rates that can help. One of the strategies you can employ is to use cashback credit cards that offer incentives.
These rewards platforms can help you save on interest rates. Cashback programs also give you access to discounts and perks that are unavailable through regular credit cards. The best part about it is that many of them have low or no annual fees so it doesn’t cost much money for you to join.
Before you decide if you should get a credit card consolidation loan, check out the following questions before proceeding: Is there anything in my life causing me stress? Are my bills going to be harder to pay off after consolidation?
If you’re considering taking out a loan for debt consolidation, try to weigh all the risks and rewards first before making any major decisions in order to determine if it’s right for you. You don’t want to make an impulsive decision like this just because it seems like a good idea at the time.
Ways to Use Credit Card Consolidation
Let’s say you decide to consolidate credit card debt. Now what? Next, you’ll need to continue making wise financial decisions so that you can get rid of your debt once and for all.
We suggest you begin making extra payments on your loans. When you get a big bonus at work or an unexpected check from Grandma, put it towards your debt. This will help you save money faster because it will lower what you pay out each month. In the long run, you’ll be able to save a ton of money on interest too!
Secondly, take the time to look through the terms and conditions written out in your debt consolidation loan contract. See if there are any details that would allow you to negotiate with creditors for lower interest rates. If so, this might be an opportunity for saving more without having to spend money on a cashback credit card.
Other than that, you should try to avoid making any other big purchases for at least two years so that you have more time to pay off your debt as fast as possible. This will allow you to save thousands of dollars in interest and get out of the vicious cycle of debt faster.
As with any financial decision, consolidation is not something you should take lightly. It’s important that you do research first so that you can find out exactly what kind of loan or process would work best for your situation.
The downside to Consolidating Loans
Now that you know when to consolidate your credit cards, and the best ways to do it, let’s talk about the drawbacks. For instance, consolidation can lead to more spending.
When you take out a loan, you’ll also have access to a credit card again. It’s common for people who consolidate their credit cards to continue using the cards and run up their debt even further. That’s why it’s important that you don’t misuse your new card as this will ruin any progress you’ve made so far in putting together your emergency fund or saving for retirement.
Your interest rates could increase after consolidation. A common misconception about taking out a debt consolidation loan is that it will reduce your interest rate on all of your loans. Unfortunately, most lenders won’t give better rates unless there has been a significant improvement in your credit score since receiving the consolidated loan. If nothing has changed, the rates will stay the same more or less.
Is Consolidation Right for You?
The decision to consolidate credit cards is a big one. You need to consider the pros and cons of consolidating, as well as how it will affect you in the long run. If you decide that consolidation is right for you, make sure it goes smoothly from start to finish!
Reach out to an experienced financial advisor and start planning your ideal financial future. Don’t wait too long – time flies by quickly when all of your attention is spent paying off debts instead of saving money or investing for retirement! For more tips, read another guide.