Pros and Cons of Credit Card Consolidation

Pros and Cons of Credit Card Consolidation

The average American with at least one credit card actually has four — and a cumulative limit surpassing $31,000. So, it makes sense that so many people are looking for ways to streamline, simplify, and reduce what they owe. There are a few different paths borrowers can take to consolidate what they owe on credit cards.

One option is opening a new balance transfer card with a special introductory offer, such as no interest for 12 months. While this special interest rate excludes new purchases, it does help cardholders directly pay down their balances without compounding additional interest during the promotional period. There usually is a per-transfer fee of between 3% and 5%.

Another option is taking out a loan — like a personal loan or a home equity line of credit — at a lower interest rate than your current credit cards’ APR. The amount you can potentially save depends on the loan product for which you can qualify, and the length of the loan. Don’t forget to factor in costs like origination fees when deciding whether to go ahead with this strategy, though.

Here are more on the pros and cons of credit card consolidation so that you understand the appeal and risks of proceeding.

Credit Card Consolidation: Pros

According to the experts at, credit card consolidation benefits include:

  • Saving money: If you’re able to qualify for a low-interest loan or balance transfer credit card based on your credit rating, you stand to potentially reduce how much you end up paying in interest charges over the duration of your debts
  • Simplifying payments: Repaying a consolidation loan requires one monthly payment, so you could potentially go from dealing with an array of credit cards to just one bill.
  • Pay off debts faster: Having a firm timeline for consolidating often helps people escape debt faster, especially if they were previously making minimum or near-minimum payments on their balances.

In a nutshell, it is possible to make debt repayment simpler, cheaper and speedier through consolidation.

Credit Card Consolidation: Cons

Anyone who tells you there’s a magical debt relief strategy with all upsides and no drawbacks is — exaggerating. Consolidation has a few potential challenges to consider, alongside the pros we just discussed.

The first thing to note is that not everyone is automatically a good candidate for consolidation. Qualifying for advantageous loans or credit cards with low-interest rates generally requires a good, or even an excellent, credit score — and a favorable debt-to-income ratio. Even if you can qualify for a consolidation product with poor credit, the interest rate you receive may counteract benefits.

Unless you carefully run the numbers before taking on a loan or transferring balances to a new credit card, you may inadvertently end up paying more than you would just address your credit cards on your own.

Plugging your budgetary and debt information into an online consolidation calculator can help you estimate how much you stand to save when you’re figuring out your next move.

Another potential difficulty associated with consolidation is the temptation to run up new balances while still paying off old debts. Adhering to a budget is key in this regard, as is figuring out how to avoid the temptation of purchasing on credit — especially for non-essential items.

Finally, consolidation does often carry fees that need to be factored into the total expense. If you were to handle credit card repayment without consolidating, you could avoid such fees.

Credit card consolidation has its pros — convenience, timeliness, and cost-effectiveness — and its cons —like the opportunity to amass more debt, fees, and the fact it’s dependent on credit score.

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