Should you consolidate credit card debt?

While Americans have become better about credit card debt since the financial crisis, there are still heavy loads of credit balances. 

In fact, U.S. News & World Report said consumers are expected to end this year with $47 billion in new credit card debt, on top of the $82 billion accrued during 2011 and 2012. 

Though many people will likely be able to keep control of their credit balances, some are probably going to need assistance. One option is to consolidate credit cards, but there are some things consumers need to ask themselves before completing this process. 

Do you have the necessary funds to pay off your credit cards?

Oftentimes, consumers confuse debt consolidation with cutting their balances, and believe it will automatically reduce the amount of debt they have, but that isn't the case. Even those who are able to consolidate still need to be able to afford to pay off their balances. Debt consolidation can help reduce monthly payments, but those who don't have the necessary funds to cover this debt should seek out alternative methods. If all else fails, filing for bankruptcy and starting over might be the best option. However, before taking that drastic step, consumers should sit down with a credit counseling agency to see what else is available. 

Can you reduce your interest rates through consolidation?

One of the major benefits of consolidating credit cards is that it can enable consumers to reduce their interest rates. Many cards come with extremely high rates – sometimes greater than 20 percent – which can expedite the rate at which their debt accumulates.

The ability to reduce interest rates through consolidation can make paying off debt a much simpler process, but not everyone is able to do so. Before deciding on this method, people need to check their credit score to see if it is good enough to secure lower interest rates. If not, then consolidation probably isn't worth it. 

Will consolidation extend your repayment period?

Using debt consolidation to reduce interest rates is generally a good move, but if it also increases the repayment period by a couple years than the benefit of lower rates probably won't exist. Interest will accrue slower, but with the longer period that a consumer will need to repay their debt, it has more time to pile up.

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