Combining Credit Cards 101

Borrowing, Credit Cards, Credit Rating

Are you dealing with more credit cards than you can handle? You may have several cards for different purposes – perhaps a travel card to maximize travel benefits, a cash-back rewards card, and a low-interest rate card for large purchases that will require you to carry a balance. They were all good ideas at the time, but now you dont have the time to properly manage them and get the most out of each cards benefits.

You could roll them all into a single balance transfer card. Many balance transfer cards offer introductory 0% annual percentage rates (APRs) that allow you to cut down total balances and minimize interest charges. However, you may also have to pay balance transfer fees. Youll probablyalso have a lower total credit limit with your balance transfer card, which in turn raises your credit utilization and drops your credit score. Chief Industry Analyst Matt Schulz breaks down credit utilization as basically how much debt you have compared to what your available credit is. That utilization ratio is the second most significant factor in your credit scoring, behind paying your bills on time.”You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

If all the cards you want to combine are from the same credit card issuer, you may have a lesser-known option. Some issuers will allow you to combine your existing cards with that issuer into a single account with a total credit limit of all the cards combined. Using this hidden route, youll have only one card to manage, and your credit utilization will stay intact.

Youll have to choose carefully which card to retain. While the credit limits will combine,rewards and perks will not. Youll get the standard interest rate and rewards package of the card you choose to keep.

Evaluate all the cards carefully. Which one offers the best combination of low interest rate and the greatest benefits when all your purchases are applied to it? Does one of your cards have a better fee structure than the others (or better still, no fees at all)? Does one rewards package stand out from all the others?

How do you decide which card to keep? MoneyTips will help you.

If you expect to carry a balance, the lowest interest rate card is probably your best choice. It doesnt take much in interest charges to wipe out even the best rewards. Consider that a 3% cash-back rewards card pays just $30 for every $1,000 you charge. Youll have to pay that balance in three months or less to come out ahead – and that doesnt take into account any new charges during that time. A single late fee could also wipe out those rewards.

Another consideration is how long youve had the accounts. While consolidation will drop your credit score a bit by dropping the average age of your accounts, the effect will be greater if you roll older accounts into newer ones. “Generally speaking, you don’t want to cancel your oldest card just because your length of credit history is an important aspect of your credit score,” agrees Schulz.Interest rates and reward considerations are still more important, but if all other things are equal, its preferable to keep the oldest accounts.

Dont want to combine cards? Theres nothing wrong with keeping multiple credit card accounts, if you can manage them. According to Experian, people with perfect 850 credit scores have an average of 6.4 credit cards, compared to the national average of 3.8 cards. They just charge less and keep lower balances on all their cards. When you manage multiple credit accounts flawlessly, high credit scores follow.You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

However, if youre having trouble keeping track of your cards and youre overspending or missing payments, its time to regain control. Combining your existing cards can be a great way to simplify your credit practices, especially if you dont have a large total balance to pay down. If you do have a significant balance to pay off, a balance transfer card is probably a better choice.

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