Have you been told to consolidate credit cards to get out of debt? It might be good advice depending on your circumstances. We uncover the details about consolidating credit cards and how it can be an early tactic to make repayments more affordable.
Average Credit Card Debt in the UK
It is no surprise that more people are going online to find out how to consolidate credit cards to make their debt repayments easier. The average UK credit card debt is currently above £2,000.
Of course, credit card consolidation is not the only method to get out of credit card debt, but it is a popular choice for some suitable debtors. But first, what really is credit card consolidation?
Consolidate Credit Cards… Why?
Debt consolidation can be done in lots of ways. It involves making multiple debts turn into fewer bigger debts with better repayment terms that work in your favour.
You can consolidate debts with loans too and there is a Money Nerd payday loan consolidation post to discuss this topic!
When you consolidate credit cards, you need to reduce the number of credit card debts you have and make repayment terms more favourable. For example, you might have three credit card debts of £500 each. By consolidating these three credit cards into one credit card, you will have one debt of £1,500.
There are other considerations but we are keeping it simple for now.
This process of reducing the number of your credit card debts is only worth it if the new single credit card debt has a lower monthly repayment than the previous three credit cards combined.
Or it may have other beneficial terms, such as an initial repayment holiday where you have to make no repayments for so many months. However, this should not be the only reason you consolidate credit cards!
The end goal of credit card consolidation is more affordable monthly repayments, but you might have to pay back for longer and pay back more overall.
How to Consolidate Credit Cards
If you are struggling to meet the repayments due on your credit cards, consolidating them is certainly an option to explore. But how do you consolidate credit cards? The answer lies in something called a credit card balance transfer.
What Is a Balance Transfer?
A credit card balance transfer is the way to consolidate credit cards by opening another credit card specifically for this purpose. Aptly, the name of this credit card is a balance transfer card and allows you to transfer the balance of other credit cards to this card.
This is important because not all credit cards allow this to happen and you don’t want to open another credit card account and find out it is not possible.
What Else to Watch Out for?
These balance transfer credit cards usually come with an interest-free period in the beginning, sometimes as long as six months. This means the balance you transfer will not increase during these months and can help you pay off more in the immediate future.
But before you sign up to a balance transfer credit card, you need to do the following:
- Look for the balance transfer fee
- Look at what interest you will be paying after the initial interest holiday period
Only by working out what the balance transfer fee is (typically 1-3% of the balance you transfer over) and the interest payments after any interest-free period, can you work out if consolidating credit cards will be worth it.
It takes time – and a calculator! Don’t rush this as you might put yourself in more debt. Speak with a debt charity if you need assistance.
Who Should Use a Credit Card Balance Transfer?
Credit card consolidation is not for everyone. It is most suitable for people who are struggling but have not fallen behind just yet, otherwise known as an early intervention debt prevention technique. If you are already behind on repayments and are receiving debt letters, there are other options available to you.
Can Anyone Complete a Credit Card Balance Transfer?
Moreover, not everyone is able to use a balance transfer credit card. To access one of these cards you must make an application, and like any other application for credit, this will depend on your credit file.
There is a good chance you can still get a balance transfer credit card if you have yet to fall into debt and have a decent credit score.
But if you are trying this technique too late or have bad credit history, the option to consolidate credit cards may be closed off for you.
What If You Can’t Consolidate Credit Cards?
Don’t panic if you cannot consolidate your credit cards because of bad credit. Other options are available, such as:
- Individual Voluntary Arrangements – a way to consolidate your debts and make monthly repayments for five years with the added bonus of wiping all unpaid debt after this time.
- Debt Relief Orders – a legal order to stop all creditors asking for money for one year and then all debt is wiped after a year if your finances have not improved.
- Debt Management Plans – a common debt solution that allows you to consolidate debts and make monthly repayments until they are paid off.
- Bankruptcy – the nuclear option that can be looked down on wrongfully. Sometimes bankruptcy is the best course of action.
You can learn more about each of these debt solutions in detail on our debt options page!
I Still Don’t Know What to Do…
If you are still struggling to know what to do with your credit card debts, why not speak with a UK debt charity? They can offer free debt advice taking into account your specific situation. Or check out more information on the Money Nerd site.
We’re here to help!