How to successfully consolidate your credit cards

By Jemma Porter

Interest rates are on the rise and credit card debt just doesn't seem to be getting any better. The big squeeze on everyone's finances has led to consumers starting to look for ways to consolidate credit card debt.


The television advertisements make consolidating credit card bills look like an unrealistically quick and easy fix, but many experts from the finance industry are recommending that consumers think about finding balance transfer credit card deals offering low or 0% interest credit cards.

Consolidating credit card bills
The average credit card interest rate in the UK is now in excess of 18%, so transferring a number of high credit card balances to one card with lower rates could have a significant impact on monthly outgoings.

For example, having five or six credit cards with interest rates around the national average could be costing a lost more in interest payments and annual fees than two cards with an 18 month 0% balance transfer period.

There are both advantages and disadvantages to consolidating credit card bills, and it is important that consumers consider both the upside and downside before jumping in to consolidation head first.

Securing good balance transfer credit card deals and having a couple of 0% credit cards to consolidate credit card debt could help you reduce debt at a much faster rate. If you continue to make monthly repayments to your credit card of the same value, this will go toward reducing the amount owed, rather than interest payments, meaning that the balance will reduce quicker and cost you less in the long run.

By being ruthless and cutting out excess credit cards you could get down to one or two open accounts to help simplify your cash flow and monthly budget, and be far less likely to be late or miss payment altogether.

If you inform your credit card company that you are planning on consolidating your debts by finding alternative balance transfer credit card deals they may offer you a lower APR in an attempt to prevent you closing credit cards and leaving their company.

Closing credit cards can cause damage to your credit score if not thought through properly, and could even hamper your chances at securing a low interest or 0% credit card rate and other forms of credit in the future. Open and active credit card accounts that have excellent payment histories can do your credit rating the world of good; closing credit cards down could cause your rating to drop as they will eventually be wiped off your report.

By focusing solely on the card's APR you could be forgetting the annual fees, late or missed payment fees, and charges for exceeding your credit limit.      

Credit card companies will always find a way to earn money from consumers, so it is important that you consider all the fees and charges associated with the credit card. By focusing solely on the card's APR you could be forgetting the annual fees, late or missed payment fees, and charges for exceeding your credit limit.

By closing multiple credit cards, you run the risk of reducing your utilisation ratio - the amount of debt compared to the amount of credit available. As an example, having five cards each with a credit limit of £5000, and balances of £1000 on each creates a 20% ratio.  However, if you were to consolidate the same amount of credit card debt to one single card with a limit of £10,000, the utilisation ratio would increase to 50%. Credit rating experts recommend that consumers try and keep their debt to less than 40% of the credit available to them.

Things to consider
Even when a credit card advertises a 0% balance transfer rate or low-interest rates, there will still be a one-off charge for transferring the balance. In the past, this charge was often capped at a certain amount so consumers didn't end up paying hundreds of pounds. However, credit card companies have started removing this cap. Before you transfer to another provider, check for any fees or charges associated with it.

The way you use credit cards will effect what features of a credit card are most important to you, as if you pay the balance immediately, high APR will not have an effect, and the charges associated with the card would have more of an impact.

See related: 8 factors to consider before your next balance transfer; Applying for a new credit card? Check your credit score first

Published: 8 December 2011