There are instances where a cardholder may hold several cards that may prove to hurt your pocket when managed inappropriately. There are instances where consolidating a credit card may be beneficial and outweigh the reasons not to take one. Below is a list of the advantages and disadvantages of consolidating a credit card.
Advantages of Consolidating Credit Cards:
- Interest Rates – having multiple cards will most likely have different interest rates. Consolidating under one credit card may be advantageous if you consolidate under the lowest interest bearing rate.
- Single Card – credit cards are one of the debt instruments that have the most complicated rules and complex interest rates computation for an average person. Most people wouldn’t focus on these rules and computation. Consolidating will help in just understanding rules and fees of a single card.
- Credit Limit – consolidating under a single card allows you to maintain under a single credit limit which may prove to be more practical than having several cards. The sum of the credit limit of multiple credit cards may sometimes be too high and beyond the cardholders capacity to liquidate.
Disadvantages of Consolidating Credit Cards:
- Payment Spread – with a single card, you cannot spread your payment under multiple dates. You will have to pay a single lump sum amount to cover the monthly dues. This becomes difficult especially when all the cards that have been consolidated have an existing debt carried with it.
- Unresolved Debt – putting all your debt under one credit card may not equally solve the problem of being under too much debt. It only pushes you to eliminate other cards that have been a burden. The actual debt, on the other hand, is still the same. It may prove to create a lesser interest rate but will still become a burden if not approached correctly.
Credit card debt has become a serious concern for more and more people who fail to manage credit card spending properly. Credit cards should always be viewed as a replacement for cash but still having enough in savings to pay for the debt. It should never be used to buy goods and services if a cardholder doesn’t have enough reserved funds to liquidate the charges being incurred.