Should You Consolidate Your Credit Card Bill?

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Consolidate Credit Card Bills and Debts

Consolidating your credit card bill can save you money, by reducing your interest so you pay the debt off faster. Consolidating your credit card bills definitely simplifies your debts, because you'll only have one bill to pay. Despite that, credit card consolidation isn't always a great deal. In some cases, it could even endanger your home.

Ways to Consolidate a Credit Card Bill
If you're considering consolidating your credit cards, you have several options. Before you make a decision, carefully consider the costs involved and whether any of these methods will reduce both the total interest paid and your current expenses.

Home Equity Loan
The home equity loan or line of credit is the most popular way to consolidate credit card bills. By borrowing against your home, you get a much lower interest rate and the new debt may be tax deductible.

There are dangers to this form of debt consolidation, though. If you borrow more than you can afford to repay, you could lose your home. You also lose the ability to erase the credit card debt in bankruptcy. Finally, the new interest when combined with loan fees and closing costs could total more than you'll pay in interest if you don't consolidate your credit cards.

Personal Loan
If you don't own a home, but you have good credit, you could apply for a personal loan that will pay off all your credit cards. You would then only have one bill to pay every month.

Keep in mind that personal loans often have much higher interest rates than home equity loans and aren't tax deductible. If your credit is good enough that you qualify for a personal loan, you may be able to receive the same interest rate by calling your credit card companies and asking. Although you won't reduce the number of bills you receive, you also won't have to pay any loan origination fees or prepayment penalties.

If you opt for a personal loan, review the terms carefully when you're approved. Although the offer in the mail may list a low rate, the rate you qualify for could be substantially higher. Compare the costs of the actual interest rate and the lowest rate your cards are willing to offer before you accept the loan.

Credit Card Balance Transfer
You may actually get the lowest rate by taking advantage of a credit card balance transfer. With good credit, you may qualify for a credit limit that equals the total amount of your debt. You can then transfer all of your debts to one card and pay it off more quickly.

To save the most money, look for a card with 0% interest for at least 12 months and a cap on balance transfer fees. Most transfer fees are 3-4% of the transferred balance. If your balance is $10,000, that fee could be $400. Look for an offer with a cap of $75 at most. If you have several balances to transfer, that cap applies to each individual transfer, not the total, so you could pay more than $75 for all of your transfers combined. A few cards don't charge transfer fees, but you must have excellent credit to qualify for those cards.

Before completing the transfer, calculate the interest you expect to pay on your current cards and compare that amount with the combined cost of transfer fees and the interest rate on the new card. You may find that the costs balance out.

If credit card consolidation will save money, then it's worth it, but don't consolidate simply to reduce the total number of bills if it won't reduce your interest rate or the cost of the debt.

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