When is Credit Card Consolidation Best for You?

Consolidation is a word you have probably heard before, but what does it mean and how can it help you?

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There are a few basic ways that consolidation works. Each case is different and finding an individual solution for our DECU members can depend on the member, their income, credit score, and their available equity. Then, by accessing the loan equity from a home or a vehicle, members can use the property as collateral to secure a home equity or personal loan, for which there will be just one payment and one interest rate.

Another method for consolidating credit card debt is to transfer the various balances from multiple cards onto just one card, and then meet the monthly payment of the new, singular debt.

Consolidating several debts into one can potentially lower the interest rate, the monthly payment and the repayment term for folks who use multiple credit cards frequently to cover expenses. Consolidation means rather than paying three, four or even five different credit card bills every month, with individual interest rates potentially topping 25%, debtors pay just one loan institution at a single interest rate. Instead of scraping by, making minimum monthly payments on high-interest credit cards, debtors can choose a loan with a fixed term and pay it off on a convenient and manageable schedule.

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Consolidation sounds great, right?

It can be, but for it to work you will need to sit down and create a plan. With consolidation, you can get to a place where you finally see light at the end of the debt tunnel, but you’ll have to hold yourself accountable, check your spending and work within your budget so you don’t fall back into old habits. But be warned, because credit card consolidation is not a guaranteed Get-Out-of-Debt card. Most importantly, debtors must address spending habits that exceed earnings. And one potential pitfall is that while many credit cardholders can succeed in paying off their debts with consolidation, more than a few end-up using those same high-interest cards again, and often with very little fiscal discipline. What happens is all too predictable, and folks find themselves running multiple high credit card balances again, on top of the consolidation loans they already took out.

Need help setting yourself up for success?

We’re here to help. Here at DECU we offer a free online budgeting tool, Money Manager, located within Online Banking. And if you aren’t ready to fully commit to a budget, try out one of our online financial education modules, Banking Basics, to get a better understanding or to get a refresher on key financial concepts to make better decisions related to managing your money.

Still not sure if debt consolidation is for you?

Reach out to a DECU representative today to see which credit card consolidation options are available to you. From there, we will work together and create a personalized plan for your situation. If you want to do a few quick calculations on your own, don’t forget about our free financial calculators:

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Remember, if you can accurately reflect on what has put you into your current situation, formulate a plan for paying off the consolidation loan, and stick to that plan, then consolidating debt is a great option for you.