The stack of bills on your kitchen counter is piling up. You have more credit cards than you can count on your fingers and toes. Each of those cards – gasoline, retail, general, or specialty – has a balance. Some are even maxed out. You also have a home loan, a car note, and some outstanding, yet unpaid medical bills. Frankly, you have more credit than you know how to handle.
According to Experian, one of the three credit-reporting agencies, 14% of U.S. consumers have more than 10 credit cards and 51% have at least four. If this sounds like your situation, you may be thinking it’s time to consolidate your credit into one neat, little package.
5 Reasons You Should Consolidate Credit
Carrying a large amount of debt is cause for concern. It can make meeting your monthly financial obligations difficult and put you in a precarious position when it comes to securing future credit. However, having too many credit accounts can be a cause for concern as well.
Therefore, you may want to consider consolidating your credit.
- Reduce debt, consolidate credit lines. While reducing your debt is your ultimate goal, you also want to eliminate unneeded credit cards and lines of credit. This removes the temptation to get into debt again.
- Increase amount of cash available. When you pay off your debts and consolidate your available credit, you free up cash that you can use to pay off other debt.
- Maintain a good credit score. Many people don’t know this, but too many credit accounts can hurt your chances of obtaining future credit and actually lower your credit score, if the amount of available credit is high in comparison with your income. By consolidating your credit, you provide yourself with the ability to meet your monthly obligations. This, in turn, protects your credit rating.
- Save money on interest rates. One of the biggest reasons to consolidate credit is to reduce the interest you pay. Hang onto credit cards and lines of credit with the lowest interest rates and eliminate the rest.
- Eliminate worry and stress. Consolidate credit and gain lower interest rates, fewer debts, easier monthly payments, and better health. Plus, with fewer credit accounts, you have less to track in case of credit card theft.
Consolidate Credit After Eliminating Debt
One of biggest mistakes that borrowers make when they find themselves in over their head in debt is to open another line of credit just to meet their monthly obligations. If this is your situation, you need to consolidate your credit and your debt now.
Just like with bill consolidation, you have a choice to consolidate your debt on your own (do-it-yourself) or with the help of a debt consolidation service. The benefit of consolidating your debt is to:
- Wind up with a single monthly payment
- Reduce high interest rates
- Eliminate collection calls
- Avoid bankruptcy
Before you decide that debt consolidation is the answer you seek, consider other ways to eliminate your debt.
- Use your home equity line of credit
- Get a cash-out refinance on your mortgage
- Apply for an unsecured, debt consolidation loan
- Borrow against your 401k
- Ask friends and family for a loan
- Transfer outstanding balances to one card
- Seek a peer-to-peer loan
It’s not enough just to consolidate your debt. Once you’ve done that, you still have credit cards and lines of credit available. Therefore, you need to trim the number of open accounts currently available to you.
You can do this by reviewing the types of accounts you currently have open, their associated interest rates, and credit limit. Depending on your current and future needs, choose those that offer the best deals. Be sure to read the fine print about monthly and transfer costs or other associated fees.
While many people worry about debt consolidation, fewer consider the importance of credit consolidation. Having too many credit accounts is time consuming to manager and opens you up to potential problems. The best solution is to manage your level of debt and credit carefully.