Money Talks, So Should You

Dealing with credit card debt consolidation

Brandon Lafving
by Brandon Lafving, Dimespring Contributor (@TechDragoon)

I recently wrote about rewards credit cards and how a friend of mine manages to juggle a keychain-full of plastic like a professional circus performer. He has a credit card for every occasion, and he pays them all off every month to avoid weighty interest charges and penalties. Not everybody can do that.

If you are like me, you can get lost in complex systems – especially when it comes to personal finance. When I had a million and one credit cards, I had a billion and twenty in debt. I needed a simple budget and a simple plan in order to make progress on my financial outlook.

Consolidating credit cards is one really powerful way to reduce your monthly costs, but it can just as easily lead you astray. If you are operating at a deficit every month and losing money, consolidating your debt will not get you very far and in fact might increase your debt load AND damage your credit rating. Make a household budget – first to determine whether you are bankruptcy-bound or not.

If you are earning more than you are spending, consolidating credit card debt will be relatively easy. First, you want to collect all your bills (which means opening them) and make a list of the balances, interest rates, and what you pay at a minimum to keep from defaulting.

READ: 4 things to ask yourself before a big credit card purchase

There are plenty of spreadsheets you can find to help you with the math. Search for a "debt consolidation spreadsheet," for your spreadsheet program. If you do not have a spreadsheet program, then use Google Docs for free.

After you input all your cards in the spreadsheet, the template should tell you what card to pay down first. And it should also tell you how much money you will save by moving forward with the plan.

Balance Transfers – Good or bad?

I am unsure whether I recommend transferring balances from one card to another. On the one hand, you might be able to transfer debt from a high interest-rate credit card to a lower APR. This could save some money. But anyone who is inexperienced with personal finance can damage their financial outlook when they do not read the fine print.  

READ: Top 5 ways to boost your credit score

Credit cards are very good at enticing customers and then tricking them into paying substantial APRs, penalties, and fees. Before transferring your balance, be sure to check on the balance transfer fee. These can often result in more expense than they will save.

Some cards charge a flat rate, like $25. Others charge a percentage, like 2%. To transfer a balance of $2,000, a 2% fee would cost you $40! If you want to transfer debt, be cautious and think it through.

Introductory APR versus Real APR

Another pitfall common to balance transfer is the introductory APR, which can lure you into shifting debt before slamming you with a high APR 6 months down the line. Often, if you are even a day late on a single payment, you will trigger the high APR. So I would advise looking at the real APR when you are deciding where your debt should be.

READ: What credit card advice should I give my children?

Once you have transferred the debt, be sure to check the old card. Sometimes, new cards will register your deficit but fail to pay the old card off!

And finally, try not to hop from card to card because your credit rating will suffer. Try to limit your balance transfers to 1X per year.


Brandon D. Lafving is an independent writer with an interest in financial systems. A graduate of Princeton University, Brandon has published journalism in The Philadelphia Inquirer, Metro, and WXPN. He also consults, researches and writes reports for small and mid-size businesses.