3 of 5

Write now Article Tools

Why bother with debt consolidation? Why not just work to pay off all your debts one by one? Well, aside from crunching all your debt into one easy monthly payment, it speeds up repayment by lowering your interest rate, and by clearing all those accounts you can actually help your credit rating even if you haven't reduced the actual amount of your debt.

By consolidating your debt, you cut the number of necessary payments to one. This at least makes it far more difficult to forget to pay one or more of several credit card bills. By paying one debt account, you assure that you remain current as long as that payment's made and vastly decrease the chances of a costly late payment. It also helps you easily keep track of where you stand with your total debt. Instead of having to add together different balances and figure out how this interest rate or that interest rate impacts the balance, most or all of your debt load is listed on one balance under one interest rate.

And that interest rate is usually lower than it was on those previous balances. If you're even considering consolidation in the first place, chances are most of your running balances charge relatively high interest rates. Even if the consolidated rate isn't super low, an 8-10% rate could be far better than the rates you're getting charged on all those separate cards. This reduces the interest you get charged and increases the amount of each payment that goes toward reducing the principal balance, getting you closer to paying off the debt.

But even simply transferring the balances to a consolidated account can help your credit, as if you've paid the debt off. See, every time you transfer a complete balance, the bank holding that original card considers it a complete payoff of the balance.

Yeah, you only took the debt and put it somewhere else, but the original card company doesn't care. From their point of view, you paid them off, and they tell that to the credit bureaus, which can boost your credit profile. But more so, it improves your standing with that card company, which then may reward you by raising the card's credit limit and reducing the interest rate. Maybe you don't use the card again (maybe you already cut it up), but it could come in handy if you ever do, or if they ever offer a low APR balance transfer, which you could use to consolidate debt again if need be.

Consolidation isn't necessarily a lateral move. Consolidation simplifies the repayment process and usually reduces the amount of interest you pay, speeding up repayment. Plus the transfer process reflects well on you with previous card companies, which can lead to better rates, higher credit limits and even special offers from those card companies in the future.

Learn more about this author, Steven Gomez.
Click here to send this author comments or questions.

Add your voice

Know something about Why consolidate credit card debt??
We want to hear your view. Write now!