Credit cards or credit accounts can come from a variety of companies and the amounts on all can add up. Some interest rates may be much higher than others, which can lead to paying much more even if you have the same balances on cards. Consolidating credit can help you by bringing your payments together on one lower interest rate account.
About Consolidation
Consolidation allows you to bring together several accounts or payments under one payment or one account. This means that instead of having a number of payments you will have only one. The idea is that you can reduce the rates, reduce your payoff times and save money compared to what you would pay if you paid out the entire balances of all of the credit accounts.
Self Consolidation Options
Generally you have a few options to consolidate your credit yourself. You can take out a loan or use home equity to get money to pay off the credit accounts, which would leave you with only the loan payment. You can use a higher balance credit card or open a new credit account to bring together all of your payments on one card. Or you can simply transfer balances from several cards onto one, and in turn eliminate the payments on those other cards.
Other Consolidation Options
Some business and nonprofits offer debt consolidation services or options. Generally these companies will develop a plan with you to get rid of your credit debt. Some may offer to pay off your debt as a consolidation loan with them that is usually for a longer term and or lower rate than you are currently paying. The Federal Trade Commission says that you should look for hidden fees and costs and be wary of false advertising with debt consolidation companies. Some of these companies also work with your creditors to work out payment plans that can include reducing or eliminating interest or fees as you pay back bills.
When to Consolidate
According to BankRate.com, people usually use credit consolidation to lower their interest rate or extend their loans. Many companies offer no-interest periods and consolidating your credit debt can eliminate interest for during these periods. BankRate.com notes that if all credit card accounts have the same interest rate, then consolidation will not help you save money.
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