Many families have multiple credit cards with balances and dealing with all of the accounts every month can be a burden. When you find yourself making minimum payments on several credit cards, consolidating your debt may be to your advantage. Credit card consolidation involves putting all of the debt from your various credit cards into a single account.
Credit Card Consolidation
The idea behind credit card consolidation is that you consolidate all of your credit card debt into a single account. Some people do this by taking out a loan, while others simply transfer their credit card balances into a single account. If you use a loan, you take the money from the loan and use it to pay off the balances on all of your credit cards. Then you only make one loan payment each month instead of several.
Balance Transfers
If you choose to consolidate your debt onto a single credit card, you will need to use balance transfers to complete this process. When you open a new credit card account, the credit card company will allow you to transfer balances to your new card. This can be done with a balance transfer check or with the help of a customer service representative from your new credit card company. Typically, to make this strategy work, you have to open up a new account with a large balance and a low introductory interest rate.
Using Home Equity
Many people in a situation like to use equity in their homes, through a home equity loan or a home equity line of credit, to consolidate credit card debt. For example, if you have lived in your home for a number of years and the value of your home has appreciated, you may have a large amount of equity that you can tap with one of these loan products. By going this route, you can often get a lower interest rate than what you have on your credit cards and you can even deduct the amount of interest that you pay from your taxable income when filing your taxes.
Dangers
While consolidating your credit card debt can be beneficial to you by lowering your interest rate and giving you less to worry about each month, it can also lead to future problems. Many people who have consolidated their debt end up accumulating more debt later. To make this process successful, you may want to get rid of the credit cards that you pay off with the funds from the consolidation. Otherwise, you will be tempted to build up more debt in the future.
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