Struggling under a pile of credit card bills? Reducing your multiple monthly payments to one may seem tempting. Just one payment to keep track of! Just one balance! If you're in the market for decluttering your finances, walk this way.
This is for you: If you're juggling multiple credit card payments every month and would rather make one payment on one large balance.
This isn't for you: If you don't have your spending under control. Consolidating your debt only makes sense if you have a sensible payoff plan. If you're still charging things to plastic and adding to your debt every month, moving your debt around won't make a bit of difference — and reducing your monthly payments could actually make you feel like you have the license to charge more. Get your spending under control before embarking on this plan.
Hands-on time: Less than two hours to research cards, apply for a card, and transfer your balances onto that card.
Total time: Up to a few weeks for the balances to transfer from your old cards to your new one.
Cost: $0 if you're really, really lucky, but probably 3 to 5 percent of the balances you're transferring—that's the average balance transfer fee being charged these days. As long as you're lowering the total interest rate on your debt by more than 3 to 5 percent, you're saving money in the end. (If you're moving the balance to a card with a similar interest rate, you won't save money. Consider how much you're paying for the convenience of one monthly payment.)
Read on to find out how to consolidate your credit card debt.
Average credit card rates, from IndexCreditCards.com:
- For consumer credit cards: 16.86 percent
- For non-reward consumer cards: 15.25 percent
- For reward credit cards: 17.55 percent
What you'll need:
- An Internet-connected computer to search for cards and apply online
- Your personal information (social security number, address), which we hope you know by heart by now
- Your employment status
- Your annual household income
- A good credit score (think 720 or higher) to score a low interest rate. You can also get your FICO score (that's the biggie) from MyFico.com for $20 with no strings, or for free if you sign up for a 10-day Score Watch trial. (Cancel within 10 days and it's still free. Don't cancel and you'll pay $14.95 a month after that.)
- Account information (balances, account numbers) for the cards from which you wish to transfer balances
What to do:
1. If you haven't checked your credit report or your score lately, do so now. (See above for getting your FICO score.)
2. Shop around. Unless you already have a low-interest or no-interest card sitting in a drawer, you'll probably have to apply for one. Try Credit.com or CreditCards.com to search for zero-percent interest or low-interest cards. (Note: Most zero-percent interest cards are only zero-interest temporarily—that rate will likely adjust in six months to a year. If you don't want to repeat this process twelve months from now, you may want to opt for a low-interest card instead.)
3. You might also try Googling phrases like "0% balance transfer fee" to see what pops up.
4. Note the card's balance transfer fee, which will probably be three percent of the balance you're transferring.
5. Also note the card's interest rate on balance transfers. Some cards are zero percent interest on purchases but charge a much higher rate on balances you've transferred over, which defeats the purpose.
6. Apply for a card that meets your needs.
7. Most online applications return a result instantly. Check to make sure that the interest rate you received was the interest rate you wanted. (If your credit score isn't so hot, you may have been approved for a less attractive rate.) If you're not happy with the rate, you don't have to accept the card.
8. If you got the rate you wanted, initiate balance transfers to the new card. You'll typically need to know the balances on the cards you wish to consolidate, those account numbers, and the types of cards.
9. Don't cancel the old cards. Doing so will decrease the amount of credit available to you overall, which could cause your credit score to drop. (Just put them away. Far, far away.)
10. Continue making payments on the old cards until the balance actually transfers, which could take a few weeks.
11. NOTE: Applying for a new card and transferring your balances onto it may cause your credit score to dip a few points, so if you're planning on doing anything that requires great credit soon (applying for a mortgage, buying a car), you may want to hold off.
12. Pay off your debt. You'll feel better. Trust us.
To learn more:
Who helped: Gerri Detweiler, personal finance expert with Credit.com; Julian B. Morris, a financial advisor in Boston
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