When does it make sense to consolidate all your credit cards?
by Author on Saturday, September 4th, 2010 | 6 Comments
I get some credit cards I would like to pay off as soon as possible. I read that you should pay the card with the higher interest rate first and then pay the minimum payment on the other cards. I like the idea of consolidating all your credit cards and make one payment , as this would make my life easier. Which option would be better, pay off each credit card or consolidate?
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The problem with consolidating those credit cards is that once the cards are paid off, you charge them back up. Then you have the credit card debt and the consolidation loan to pay.
The most effective way to get yourself out of credit card debt is to squeeze every penny out of your budget and put it on the highest interest rate card, while making minimum payments on therest. When the highest is paid off, move to the next till they are all paid off.
Not only will you get out of debt, you will learn better financial management. It will take 2 or 3 years to pay off the credit card debt this way.
It make sense to consolidate all credit cards accounts when you are maximizing all your cards and when you find a good interest rate -
It makes more sense to consolidate if you get a better interest rate. some people just get a new credit card with an introductory offer of 0% interest on transferred balances. Or you could get a consolidation loan. Either way, if the interest rate is lower that consolidate. But if you have low rates on your cards, you may consider paying them off one at a time or transferring the balances to the card with the lowest interest rate.
If you consolidate your cards to one payment you do effectivley lower your monthly payment, freeing up cash for paying other things off if need be, but I’d advise against it. Once you’re into a fixed rate loan, it’s easy NOT to make extra payments to get it paid off early. Thus extending the point of being debt free.
The example I used is from Dave Ramsey. Snowball payments.
Order your credit cards, lowest amount balance to highest, pay the minimums on all but the lowest balance. Pay over and above on that one what you can afford without shorting your budget in house, transporation, food and clothing expenses. Once you have this lowest balance card paid off, roll that amount you paid each month onto the next lowest balance card.
Card #1 is paid off, you paid 100/mo. Card 2 you’ve been paying 65/mo minimums. Now you pay Card #2 165/mo, thus paying it off next. You continue on this track, rolling the payments from a paid off card to the next, and you will eventually pay it all off. Once you’ve paid a card off, cut it up, but leave it open for 3-6 months before closing it. This will help keep your credit score up.
Remember, you didn’t get into debt overnight, so you won’t get out of it overnight. the only way this will work is to stop spending on the CC’s or they will never get paid off.
Consolidation never makes sense, instead look at snowballing the debt.
http://www.geocities.com/snidecl/debtsnowball.html
check out dave ramsey’s total money makeover.
Contrary to conventional thinking don’t pay off the large amounts even if interest is higher, payoff small amounts first, then next, piling on the amount from the previous items paid off on to the next one up.
best thing is to eliminate spending and using credit.
look at the baby steps.
Get "current with debts"
$1,000 to start an Emergency Fund
Pay off all debt using the Debt Snowball
3 to 6 months of expenses in savings
Invest 15% of household income into Roth IRAs and pre-tax retirement
College funding for children
Pay off home early
Build wealth and give!
Invest in mutual funds and real estate
Don’t pay some jackazz to help you "consolidate" debt. Statistics have shown "debt consolidation" leads to deeper debt.
I’m 49 years old and have been playing the credit card shuffle for a long time. I am midway through my debt snowball. I refuse to ever use credit again after having been a credit junkie for 30 years.
We’ve paid off nearly 50,000 in the last three years. I still have about 20000 in unsecured credit to pay off then on to the mortgage.
Check out FPU (financial peace university), and daveramsey.com I borrowed the DVD’s from our church and bought the book on Amazon for about $15
If you have good credit, get a new credit card with 0 interest for 12 months. Transfer all your balances into this new card and try to pay it off in 12 months. As long as you make the minimum payment, you don’t pay any interest.