Thinking of Consolidating Your Credit Cards? Read This First

NEW YORK (MainStreet) —If you thought the financial crisis taught us a thing or two about excess credit card debt, think again: After a few years of paying down cards, consumers are back at it, increasing their average credit card burden to over $15,000.

With a return to high indebtedness comes a desire to lessen its burden– whether through a traditional consolidation service or creative approaches, such as those tempting 0% APY balance transfer offers and personal loans. These options couldn’t be more dissimilar, though, so consider these issues before you embark on either:

Also see: How Paying Just the Minimum on Your Credit Card is a Trap

0% Credit Card Offers Are Only As Good As Your Financial Discipline

If it seems that 0% credit card offer is a savvy way to consolidate high-interest balances and lower your payments, you may be right – but only if you’re the sort of person who can pay down debt quickly.

Teaser introductory rates offered by many card companies are usually only valid for 6 to 15 months, which means you’d need to be certain you can aggressively pay down the debt in that time period.

Consumer finance expert and author, Jennifer Openshaw, agrees with this approach.

"Balance transfer offers can be useful if you already have the discipline to pay off debt quickly," she said. "Otherwise, you might end up worse off than when you started as the interest rate balloons."

If you think you can make significant inroads on debt repayment during the introductory rate offer, this may be your best repayment option. The net impact on your credit will also be positive, for two reasons:

  • 1. You’ll probably be accelerating repayment, thus demonstrating the ability to handle your debt burden more effectively.
  • 2. The ratio between your total debt level and available credit limit will improve, since you’ll have more cards open.

For this reason, you shouldn’t close your existing accounts. As John Ulzheimer, President of Consumer Education at warns, “Don’t close your existing card, because you might hurt your score unnecessarily.”