Credit Card Consolidation

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Credit Card Consolidation – Excellent Move But Don’t Shut Down the Line of Credit!

The credit card is part of the American staple diet. The average household holds a staggering 14.3 bank and retail credit cards. With so many cards how can you possibly keep up the monthly repayments? Credit card consolidation is the key. Consolidate, consolidate, consolidate!

It's the financial buzz word of the decade. In a debt ridden society with 40% of families spending more than they earn, we should all endeavour to realise credit card debt consolidation to reduce the risk of missing payments and having a detrimental impact of our credit score. It is also important to realise that credit card consolidation should not mean shutting all of the credit card accounts down when you achieve a zero balance- this can have a damaging affect too.

Sound confusing? Read on……

What is a credit score?

It's a number that lenders use to work out whether or not they will take the risk to loan you money (for example a consolidation loan), provide you with a mortgage or take out such things as credit cards. The better the credit score, the better the risk you are.

What impacts my score?

This can vary, depending on what loan you have applied for and what score is being used. In general terms it's

  • Number and severity of late payments
  • Type, number and age of accounts
  • Total debt outstanding
  • Recent enquiries made

How will credit card consolidation affect my score?

If you decide to transfer all your credit card balances to one low or 0% interest card, take out a home equity loan to clear all your credit card balances or a debt consolidation loan, this will improve your credit score over time. This will only happen if you keep up the monthly repayments and pay the debt off in full.

After realizing credit card consolidation – should I close the accounts?

There is a simple answer to that one – NO!

Of course, if you are part of an average household with over 14 cards, it could be worthwhile closing some of the credit card accounts to reduce temptation – but don't close all of them. When you close accounts this affects your balance to limit ratio on your credit score. Having high debt balances compared to a small amount of credit that you have available is considered more negative than leaving the accounts open with a zero balance.