Is it a Good Idea to Consolidate Credit Card Debt?

Is it a good idea to consolidate credit card debt? The average American household typically has three different credit cards; in 2020, the national consumer debt amount reached $14.56 trillion. While those numbers may be surprising, credit card debt is only one aspect of consumer debt to be accounted for in those statistics. 

Some households may juggle multiple credit cards, auto loans, student debt, and a mortgage. Keeping track of different payments, calculating interest rates, balancing spending, and saving money can leave you feeling stressed. 

Consolidating credit card debt involves taking multiple cards and transferring the balances to one card or loan. While this may sound like an ideal plan, there are pros and cons. Consider the following to determine whether consolidating your debt is right for you.

Streamlined Accounting

When you consolidate your credit card debt and other unsecured debt, all of your payments will be rolled into one monthly payment. This will make managing debt in your budget easier because you will only have one bill payment to worry about.

Along with a more efficient payment process, consolidating debt typically offers: 

• A lower payment
• A longer payment term
• A lower interest rate
• Often improves your credit score

Lower Interest Rate

If you’ve been meeting your credit card payment schedule on multiple cards, your credit score most likely has improved. Suppose your score has gone up since opening those initial cards. In that case, you’ll probably qualify for a better interest rate during your credit consolidation. 

Even if your score hasn’t significantly improved, consolidation could still improve the interest rates. Instead of paying higher interest rates on several cards, you’re left with one payment and one interest rate. Consult with your Customers Bank banker or financial advisor about the best approach to your situation.

Numbers Won’t Correct Behavior

If you’re considering consolidating your credit card debt, you’re motivated to fix your financial matters. However, financial health is more than just a number or a score. Before your consolidation, address your behavior and make a financial plan:

• Track your expenses first.
• Make a monthly budget, and stick to it!
• Cut out unnecessary expenses (brew your coffee at home).
• Cancel subscriptions (few people need a $30 car wash membership).
• Don’t borrow again (cut the card up).

Consider the Fees Associated with Consolidation

Don’t rob Peter to pay Paul, or you could be the one who loses. Understanding the fees associated with a new loan or credit card can get complicated. For example, a consolidation loan often comes with an origination fee, annual percentage rates, and closing costs. 

Often, consolidating credit card debt with a new higher-limit and lower-interest-rate card also has fees associated with the service. Calculate the annual fee, interest rate with the credit amount, and the balance transfer fee before deciding whether you’ll save money with a consolidation. 

So, is it a Good Idea to Consolidate Credit Card Debt?

Consolidating debt can be a powerful financial tool if you have multiple credit cards and want to make debt repayment easier and cheaper. Before you decide, evaluate your financial behavior and make a plan to stay out of debt. Understand the terms and fees associated with debt consolidation to determine whether it’s a good idea, and reach out to Customers Bank for effective credit consolidation options.