How to Consolidate Credit Cards

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Credit card consolidation involves rolling the outstanding balance of multiple cards into a new account with one monthly payment. In addition to options such as balance transfers and consolidation loans, you can also consolidate credit card debt by working with a debt management company. It's vital to understand how each one works because no single solution works for everyone, or in every situation, and each option has its own advantages and drawbacks.

Transfer Balances

Open a new credit card account to use specifically for transferring the outstanding balances on your open credit card accounts. You'll need the name, account number and outstanding balance of each open card you want to include. According to NerdWallet, a personal finance website, most credit card companies require a credit score of at least 690 to qualify. Identify cards that offer an interest-free introductory period. Next, review and compare their add-on fees such as annual fees and balance transfer fees -- usually 3 to 4 percent of the amount of the transferred balance. Finally, compare the interest rates for each card once the interest-free period expires

Take Out a Debt Consolidation Loan

Apply for a debt consolidation loan through your bank or credit union. If you qualify, most lenders will pay each credit card company directly. If you don't qualify and you have sufficient equity or collateral, apply for a home equity or secured personal loan and pay credit card balances yourself. The Consumer Financial Protection Bureau recommends that you make sure a debt consolidation loan is a good choice before committing. You don't want to spend more on fees or interest for the consolidation loan than you do on your individual credit cards. Use an online loan consolidation calculator or add up the monthly payments, including fees and interest, and compare these with the consolidation loan.

Work With a Credit Counselor

A credit counseling service is a way to consolidate credit card debt without opening a new card or taking out a loan. With this option, a representative from the service negotiates with credit card companies on your behalf to reduce interest rates and lower monthly payments. Each month, you send in a single payment that covers all your credit cards and the company pays your creditors. Using a credit counseling service will not affect your credit score as long as you pay all of the amounts in full. However, it is vital to choose a reputable company. To assist you, the U.S. Department of Justice website has a list of approved counseling services and the Consumer Financial Protection Bureau has a list of questions to ask each service before you decide.

Consolidation Considerations

It takes self-discipline and clear goals to make sure credit card consolidation is the best long-term choice. While the goal is to decrease the total percentage of your credit card balances to your available credit card limits, you can easily find yourself in more financial trouble if you consolidate and then continue using newly cleared cards. Cancelling cleared credit cards immediately after consolidating is another common mistake. According to MyFICO, owing the same total balance but having fewer open accounts can lower your credit score. Keep your other accounts open but resist the urge to make purchases with them.

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