5 signs you should consolidate your credit card debt in 2024

By Jackie Veling | NerdWallet

While the vacations are usually a reflective time, the definitive flip of the calendar into a brand new 12 months can encourage you to set your sights excessive.

Go to the health club extra. Be in your telephone much less. And — should you’re like many Americans — get your bank card debt below management, as soon as and for all.

Summer 2023 marked a brand new excessive for Americans’ whole bank card debt, with balances passing $1 trillion for the primary time in historical past, in keeping with the Federal Reserve Bank of New York.

This kind of debt can really feel uniquely traumatic, like one thing you may’t get forward of irrespective of how arduous you strive. Though there’s no fast repair for bank card debt, consolidation generally is a sensible monetary technique that simplifies your money owed and lowers the quantity of curiosity you pay.

Here are 5 indicators that consolidation would be the proper monetary transfer to make in 2024.

1. You have a fairly good credit score rating

Your credit score rating is likely one of the most vital elements when consolidating bank card debt, as a result of sturdy credit score will enable you to qualify for a debt consolidation product.

Tiffany Johnson, an authorized monetary planner based mostly in Athens, Georgia, says step one she takes along with her shoppers is to have them pull their credit score reviews from the three main credit score bureaus (Experian, Equifax and TransUnion) and examine for any errors. You can get your credit score report weekly without spending a dime at AnnualCreditReport.com.

“If they have a reasonable credit score, I would say at least 600, that’s when we’ll start looking at debt consolidation options for them,” she says.

Though some consolidation merchandise can be found to debtors with credit score scores under 600, rates of interest are usually much like and even greater than their present money owed, so it in all probability received’t make sense to consolidate, Johnson says. The same fee means you’ll miss out on curiosity financial savings, and you might not be capable of get out of debt quicker.

2. You’re juggling a number of bank card balances

If you’re struggling to wrangle many balances, consolidating will help as a result of it combines a number of money owed into one, often through a steadiness switch card or a debt consolidation mortgage.

With a steadiness switch, you roll your whole bank card money owed onto the steadiness switch card, so that you’re left with just one steadiness. If you go along with a debt consolidation mortgage, you utilize the mortgage funds to repay your bank cards, leaving you with simply the month-to-month cost on the mortgage.

This could make a pile of unruly money owed appear extra manageable, because you solely have one cost as a substitute of a number of.

Johnson says she seems to be for whether or not her shoppers have greater than three bank cards with totally different cost dates, minimal cost quantities and rates of interest earlier than recommending consolidation.

3. You’re making minimal month-to-month funds, however seeing no progress

If you’re feeling like you may’t get out from below your bank card debt, that’s since you’re not simply coping with the debt itself, but in addition the curiosity that accumulates once you carry a steadiness.

In 2022, shoppers have been charged $130 billion in curiosity and costs — the best quantity ever measured by the Consumer Financial Protection Bureau, which launched the report in October 2023. Interest accounted for $105 billion of that sum.

Consolidation will help break the high-interest entice, particularly should you go along with a steadiness switch card, since these playing cards have zero-interest promotional durations that may last as long as 21 months. You’ll pay no curiosity throughout this time even should you carry a steadiness.

Debt consolidation loans do cost curiosity, however should you qualify for a decrease rate of interest than the typical fee throughout your bank cards, you’ll nonetheless lower your expenses.

If your debt is half or extra of your gross revenue, or it’ll take you longer than 5 years to pay it off, you might wish to discover debt reduction choices as a substitute of consolidation. For instance, working with a good credit score counseling company to enter a debt administration plan will help you pay down your money owed at a lowered rate of interest.

4. You’re motivated by a transparent end line

The psychology behind paying off debt is simply as vital because the logistics, says Allison Sanka, an accredited monetary counselor based mostly in Berwyn, Pennsylvania.

If you favor realizing a precise date you’ll be out of debt, consolidation can provide you a transparent endpoint, notably should you go along with a debt consolidation mortgage. These loans have mounted rates of interest and reimbursement phrases, so so long as you make the funds on time, you’ll know the precise date you’ll be debt-free.

But a mortgage isn’t the one choice. Sanka says most of her shoppers have success with out consolidating through the use of the snowball or avalanche strategies, wherein you deal with money owed one-by-one, beginning with both the smallest debt (snowball) or the one with the best rate of interest (avalanche).

“I have my clients pay off the lowest balance first if they can knock it out really fast,” Sanka says. “It’s pretty psychologically rewarding to see the debt being tackled in its original form.”

5. You’ve gotten to the basis of your debt

Both Sanka and Johnson emphasize addressing the origin of your debt earlier than consolidating. If you skip this step, consolidation received’t matter because you’ll possible end up in debt once more, they are saying.

Sanka recommends working backward to determine what led to your debt within the first place. For instance, should you wrestle to handle sudden bills, it’s vital to construct up an emergency fund. Even $500 can imply the distinction between with the ability to cowl a shock invoice or having to reenter the debt cycle, she says.

Johnson advises shoppers to not use their bank cards for discretionary bills like consuming out since these prices range month-to-month and are arduous to price range for. Instead, tie mounted bills to your bank card so that you simply’re charged the identical quantity every month. You’re then much less prone to be caught off guard by your bank card assertion, she says.

“You just need something to keep you off the hamster wheel of using the credit card for everything that comes your way,” Sanka says.