Consolidating all your debts onto one credit card can have many advantages. You only need to remember one due date each month and make one payment. You can save hundreds or thousands of dollars if the credit card interest rate is lower than what you were paying on the other accounts. Consolidation is easy if you have a good credit history and are willing to do a little research to get the best rate and terms for the consolidation.
Step 1
Add up all the debts you wish to consolidate onto one credit card. This will tell you how large the credit limit must be on the card you will use for the consolidation.
Step 2
Review your credit history to make sure it is good enough to qualify for a credit line increase or a new credit card. You will probably need to request an increase or get a new card with a very low interest rate to accommodate your total bills. Your credit must be very good to qualify for the increase or new account, Ben Woolsey of creditcards.com says. Your credit reports are available for free every year from the government-run annualcreditreport.com website. Request them, check your history and dispute any negative errors that could keep you from getting new credit or an increase.
Step 3
Decide whether you wish to use an existing credit card or open a new account. Some credit card issuers offer very attractive rates for new accounts when they know you will be doing high balance transfers. The rate may be as low as zero during the promotional period. Compare the best offers you can find on search sites like Bankrate or creditcards.com with your current accounts. These sites let you narrow your search to the best cards for balance transfers.
Step 4
Apply for the new credit card you have chosen or call your current card issuer and ask for an increase to accommodate the entire amount of your debt. You can always apply for a new account if your current bank will not give you the increase. Let the customer service representative know you will be forced to take your business to another company if she cannot help you.
Step 5
Transfer your debts onto the credit card you are using for the consolidation. Most companies make it easy to do this by calling or filling out a form to transfer other credit card balances. They will generally provide checks linked to your account to pay off loans and other types of debts and transfer the balance to the card.
Tips and Warnings
- Do not get any loans or use your other credit cards once you have done the consolidation. Don't close your other credit card accounts, as Fair Isaac Corp., which compiles FICO credit scores, says that can hurt your score by impacting the length of your credit history. Simply stop using them other than one or two purchases each year to make sure the accounts stay open and in active status. Woolsey says you should consolidate as much debt as possible even if you cannot get a credit card with a limit that will accommodate the whole account. He says you will still save money because of the lower interest on at least part of your debt.
- Ask about balance transfer fees when you are deciding whether to use a current account or open a new credit card for the consolidation so you don't get hit with an unpleasant surprise. Companies often waive such fees when an account is new. Otherwise you may have to pay a set fee or a percent of each balance. Your current bank may be willing to waive the transfer fees if it knows you are shopping around.
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