Having several credit cards with different balances and different payments can be difficult to stay on top of. If you’re struggling to keep up with them all or having financial hardships, consolidating your credit cards may be the answer.

There are pros and cons when it comes to consolidating that you should consider. You may also be thinking about how this will affect your credit. There are several factors concerning credit cards that will contribute to making your score higher or lower.

If you’re having trouble making payments or are looking to consolidate the amount of debt you have, doing a consolidation may be helpful. This guide will take an in-depth look at how consolidating credit card debt can affect your credit.

Credit Card Basics

A credit card is a card issued by a bank, online lender, or financial company, that lets cardholders borrow funds. The funds can be used to pay for services and goods.

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Credit cards come with the condition that the money borrowed must be paid by the agreed-upon time. The cardholder agrees to terms, fees and interest charges. Minimum payments are typically required monthly.

Credit cards also come with maximum spending limits. The borrower can not go over these limits. Once they are reached, the lender will decline to pay for goods or services until more of the balance is paid.

Credit Card Debt and Credit Score

The amount of credit card debt you have is reflected on your credit report. The amount of cards you have, their balances, as well as your payment history is all recorded by the three major credit bureaus.

Several different factors play into your credit score. One factor is the amount of debt you have. If you have balances that are all near your credit limit, this will lower your credit score. It shows that you are almost using all of your available credit already.

If you have high credit card debts where the balances are almost at the maximum spending limit this will poorly reflect on your credit score. Having too many revolving credit card debts also won’t play in your favor.

Paying your credit card on time and paying off your balance entirely every month will positively impact your credit score.

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How to Combine Credit Card Debt

Consolidating your credit card debt is the process in which you take multiple credit card balances and combine them into one. With credit cards, there are several different options for consolidating your credit card debt.

One popular option for credit cards is a balance transfer. A balance transfer is when you take one card and pay off the balance of another. Typically, you’ll want to move your higher-interest balances to your card with a lower interest.

Another popular option is to transfer your balance and pay off your card or cards with a personal loan. With this option, you are borrowing money from a lender in the form of a loan in order to pay off one or more of your credit cards with the single loan.

With a personal loan, you’ll need to apply with a lender as you would for any other installment loan such as your car or mortgage. If you meet the qualification standards, you’ll be given an amount you qualify for and you’ll be able to use that money to pay off your credit cards.

The Positive Side of Debt Consolidation

In terms of your credit, a consolidation loan may help boost your score. Not only will you have fewer revolving credit card debts but you also will no longer be maxing out your credit lines. Having a high utilization rate on your cards can really take your credit score down.

With a personal loan, even though you will still have the same amount of debt, you won’t have multiple maxed-out credit cards on your record.

Another perk to consolidating your credit card debt is that if you transfer your balances to the card or personal loan with a lower interest rate, you’ll save money on interest each month.

Potential Negatives to Consolidating Your Debt

It’s important to go into a debt consolidation with a fresh mindset about your spending habits as a whole. If you’re paying off your credit cards with a personal loan, you need to make some serious changes in regards to your credit card usage.

If you take all of your credit card balances to zero and then start maxing them out again, you’ll be in worse shape than you were before. Now, not only will you have multiple high credit card balances again, but you’ll also have a personal loan added to your debt.

What Impacts Your Credit Score?

In addition to your credit card debt, there are a number of factors that play into your overall credit score. Your credit score is an accumulation of all of these factors and each carries a certain weight of importance.

Additional factors that go into your credit score include your payment history, the types of debt you have, as well as how many credit inquiries you’ve had. You should look at your credit as a whole when deciding if debt consolidation would benefit you.

Federal law allows consumers a free annual credit report each year to download. You’ll be able to pinpoint ways to improve and what makes sense to consolidate.

Downloading a free copy of your report also won’t count against you as a credit inquiry so you won’t get dinged a second time when a lender pulls your credit for your new personal loan.

Consolidating Credit Card Debt: Is It Right For You?

Deciding whether or not consolidating credit card debt makes sense for you can be a tough decision. There are interest rates to factor in, your credit history, your credit score as well as your ability to pay.

For a personal loan to make sense, you’ll need to change your spending habits and not wind up with the same maxed-out credit cards you had before. Start fresh with a clean slate and start to repair your credit with a lower interest loan.

Making positive changes and having consolidated credit card debt can make all the difference in repairing your credit and getting you out of a bad cycle. To learn more about personal loans and consolidating your credit card debt, get started here.