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A Step-By-Step Guide to the Credit Card Debt Consolidation Process

According to statistics, over 60% of American households hold credit cards, with the average debt being $6,194. 

While not ideal, credit card debt of $6,194 might not be unmanageable if you aren’t burdened with a lot of other debt. However, what if your credit card debt is more than this? What if you have multiple lines of credit, and you can’t keep up with the payments?

If this is the case, one of the best avenues to look into is how to consolidate credit card debt. Debt consolidation is an effective strategy for controlling escalating debt and securing lower interest rates. This is especially true for credit card debt, which typically comes with high-interest rates. 

If you want to get back on track and consolidate your credit card debt, read on as we break down the steps of how to go about this.

Step 1: Get Clear on Your Budget

If you are looking to consolidate your credit card debt, the first thing you need to do is take a look at your budget.

If you have yet to make a budget, start by listing in as much detail as possible all of your income and expenses. Once that is done, tally up the totals and see what you are left with. 

If you have any free money to work with after all expenses are paid, this is ideal, as you can use this surplus to take advantage of solutions such as balance transfer cards with a 0% period of interest.

These offerings are usually limited to 12-24 months, therefore it is essential that you work out whether you can eliminate the debt before the interest-free period comes to an end. Otherwise, you will have consolidated your debt, but may end up paying more interest long term than what you are paying currently.  

If you find that you do not have any surplus money in your budget, this is a good time to work out in which areas you can economize and cut costs so that you can have more money at hand to pay off your credit card debt.

Step 2: Draw Your Credit Report

The next step when looking to combine credit card debt is to draw your credit report. You should do this from all three of the big agencies Equifax, Experian, and TransUnion. 

By doing this you can compare the three reports and determine if there are any errors. If so, you should immediately contact the credit reporting bureau and get the issue sorted out. This will help you once you start looking for solutions to consolidate your credit card debt, as solution providers will also pull your credit report. If your score shows up lower than it should be, this will negatively impact the type of consolidation options you can apply for. 

Another reason why you need to draw up your credit report is so that you can gauge what type of solutions your score will allow you to consider. 

For example, if your credit score is above 660, you may be able to qualify for one of the balance transfer card consolidation solutions that we mentioned earlier. Under 660, and you will need to look at other options, such as debt arbitration. 

Step 3: Add up Your Credit Card Debt

Another step to start determining how to consolidate your credit card debt is to calculate your total debt. 

Large amounts of credit card debt will often disqualify you for solutions like balance transfer cards and personal loans. In this case, you may need to look into debt arbitration. On the other hand, if your credit card debt is on the lower end, at say around $2,000, then it is likely that you may be eligible for a balance transfer card. 

Step 4: Work out Your Average Interest Rate

The other thing you need to work out is your average rate of interest. This is very important, as it will help you to determine which credit card debt consolidation solutions can offer you true savings. 

The way to work out your average interest rate is simple. All you need to do is add up all of your current rates of interest. Then, divide this by the number of lines of credit you have. 

For example:

You have 4 credit cards. They have interest rates of 15%, 17%, 18,5% and 24% respectively. 

Add: 15% + 17% + 18,5% +24% = 74.5%

Then, divide: 74.5% ÷ 4 = 18.63%

By doing this calculation you will be able to see that your average interest rate across the loans is 18.63%. This means that you will need to look for credit card consolidation solutions that offer a rate of interest below this for you to achieve a saving. 

Step 5: Decide What Consolidation Solution Fits Your Needs

The last step to consolidate credit card debt is to determine which consolidation solution fits your needs. 

Above we have mentioned balance transfer cards. These are a great way to consolidate credit cards into one card, often with a reduced or zero rate of interest. 

If you are considering a zero-interest balance transfer card, make sure that you will be able to eradicate the debt on the card before the zero-interest terms are up.

Another way to consolidate credit cards into one payment is to take out a personal loan, pay off the cards, and then just make payment on the loan amount. This is not always the most advantageous, however. If your credit score is high enough for you to secure a personal loan, it is probably high enough for you to qualify for a balance transfer card. 

If you can secure a balance transfer card with low-to-no interest rates, this can result in less interest than taking out a personal loan. 

Lastly, you can also look into debt arbitration solutions. Debt arbitration companies work on your behalf with your creditors to secure you lower rates of interest, or, in some cases, get a portion of your debt forgiven. 

Do You Need to Consolidate Credit Card Debt?

Consolidating your credit card debt poses a number of benefits. You may be able to secure a lower rate of interest, and your monthly payments will be consolidated into one, which makes budgeting and meeting your payment each month that much easier. 

If you are looking to consolidate credit card debt, one of the best places to start is here. Take advantage of our free online matching tool which will instantly pair you up with consolidation solutions that are tailored to your specific needs. No need to trawl the Internet, simply fill out our form and let us do the work for you. 

If you have any questions, feel free to contact us and we will be happy to assist. 

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