Consolidating Credit Card Debt to Simplify Repayments

Repaying multiple credit card debts or loans can be a hassle for anyone that is not a professional accountant, but many tend to underestimate the challenges associated with balancing ongoing monthly bills and several debts that are accumulating interest at increasingly high rate. Because most cardholders are subjected to penalty interest rates after a late or missed payment, it is not uncommon for one to have two or more credit cards with outstanding debts that carry an APR of 20% or more. The key to escaping debt quickly, with a minimal amount of interest paid, is to consolidate the debts to centralize and simplify monthly repayments.


Using Balance Transfer Credit Cards

The best way to consolidate the balances of several credit cards to a single account is to utilize the benefits of a balance transfer credit card. Balance transfer cards are called so because they do not carry balance transfer fees, which can range from 2 to 5% of the total transaction amount each time a balance transfer is conducted. In addition, balance transfer credit cards often have 0% APR introductory periods, allowing the cardholder to begin making repayments towards their newly transferred balances without any interest charged. If you can manage to repay all of the transferred debts before the introductory rate expires, you may be able to avoid all future interest. Keep in mind that it may be difficult to receive approval for an ideal balance transfer credit card after your credit score has already been damaged, so it would be ideal if you already had an open balance transfer account to use.

Using Standard Credit Accounts


If you’re unable to obtain approval for a balance transfer credit card, it may still be beneficial to use standard credit account, depending on the cost of the balance transfer fees and how much interest could be saved,. For example – If you currently owe $600 on a credit card that is being charged 20% interest, and you have another credit card account that is currently incurring the introductory rate, yet has balance transfer fees of 2% of the transaction amount, it would still be advantageous to transfer the balance and consolidate the debt. On the other hand, if the card that is being charged 20% APR only has an outstanding balance of $300, and the balance transfer fee is 5% of the transaction amount per transaction, then it would not be beneficial to conduct the transfer. As a rule of thumb, as long as the account that is being used to centralize the debts carries a lower interest rate than all of the other accounts and does not have exuberant balance transfer fees, then it may be advisable to consolidate debts using that account.


Using Loans with Lower Interest Rates

In rare cases, it may be possible to obtain approval for a loan that carries lower interest rates than one or more of your current outstanding credit accounts. Unfortunately, once the credit score has been damaged it is often difficult, if not impossible, to find a lender that will approve you for a loan that has better terms and conditions than the credit cards that you are currently trying to repay. If you’re interested in using loans to consolidate credit card debts, it would be best to avoid those that have strict penalties such as payday loans, as these could be detrimental to your debt reduction efforts by causing more debt to accumulate. It may also be possible to find a close friend or family member that is willing to obtain or cosign for a better loan to help you consolidate your debts.