Credit card consolidation can be a great way to combine several lines of credit into one, meaning you have fewer payments to keep track of and you will probably have a lower total monthly payment. However, it is not always a good idea to do it and if done incorrectly, can cost you a lot of money.

What to Look For When Considering Credit Card Consolidation

Promotional APRs

Many credit cards will give you a 0% interest rate on balance transfers for the first 12 to 24 months. After the promotional period, your rate on whatever is left will usually jump to your standard APR.

The best combination is a long promotional period of 0% APR, say 24 months, and a fairly low standard APR, generally 10% or lower. This kind of deal rarely comes along and when it does, it is generally only available for those with excellent credit. If you already have several credit cards open and a high credit utilization ratio, you’ll probably have to deal with a standard APR in the 12-23% range. The good news is you should still be eligible for a 0% balance transfer APR.

Low Balance Transfer Fees

Balance transfer fees over 3% should be avoided unless your current APRs are very high and the rate you will be getting after the transfer will be much lower, even after a promotional period of 0% APR.

A fee of even 3% can add up to a lot of money but compared to what you will probably be saving on interest, it is usually worth it. This becomes an even better deal if you can find lower transfer fees, which will not happen often, but you might get lucky and find a 2% rate with either an existing card, or a new credit card.

The one thing you do want to look out for is a 0% transfer fee but no promotional 0% APR period. Some cards have started letting you transfer your balances for free but charging 5-8% APR for a certain period of time before moving the interest rate to your standard APR. This generally does not work out well unless you can afford to pay off the entire balance transfer within a few months.

When it Makes Sense to Consolidate

If your interest rates on your current credit cards are high and you plan on having a balance on them for ~6 months or more, a balance transfer is usually a good idea. This assumes a standard 3% transfer fee (which will immediately become principal) and an 18 month 0% APR.

The trap that some people fall into is that they will transfer their balances to a new card while running the debt up on their old cards as soon as the transfers go through. This can end up costing a consumer dearly since they are right back in the same boat with balances on high APR cards, but with the additional required payment on the card holding the balance transfers.

When You Shouldn’t Consolidate

For those planning to pay off their balances completely within the next few months, it usually does not make sense to consolidate everything onto one card. With multiple smaller balances, you can pay down those with the highest interest rates first, eliminating monthly payments as time goes one, which should allow you to pay off other balances faster.

Even with comparatively high APRs, the balance transfer fee hits you immediately, guaranteeing a certain amount of “interest” that you could somewhat avoid by paying off individual lines of credit.