Why You Should Never Consolidate Credit Cards with More Credit Cards

"Zero percent APR balance transfers!" Credit card companies have often used this tactic to persuade consumers to transfer the debt from other credit cards to their low (or no) interest cards. For many, this seemed like a great way to consolidate debt and make it more manageable. They might even save some money in the process. It’s a great deal. How could you go wrong? Unfortunately, using credit cards to consolidate credit cards is hardly ever a great deal for the consumer.

It is easy to understand the appeal of these ads. If you are currently paying 13 percent interest on one of your credit cards, why not transfer it over to a card that has a zero percent APR? There are various factors that cause this to backfire. One of the most common is that there is often a hefty fee attached to balance transfers. Immediately, you have increased the total amount you owe.

Even if there is no charge for the transfer, you might run into trouble over your limit. Say you have one credit card that has a balance of $6500. You want to transfer this to another card to save money on interest. Perhaps you have two credit cards with $3000 balances that you want to combine into one payment. In either case, the limit that the new credit card gives you may not be that which was advertised.

How does this happen? The rates and terms you see advertised are the ideal terms for consumers with great credit scores. When you get a flyer in your mailbox that says you have been "pre-approved" for a $10,000 credit limit, you assume that is what you are going to get. You line up the transfers only to find your limit is actually $6000. If you are consolidating your two $3000 cards, this puts you right at your limit. Until you add a service charge, which puts you over. Then you have the service charge and an over-the-limit charge. You are immediately starting in a less desirable position than you were in before. In addition, if you are late on a payment, you have another fee and your low introductory rate is gone. You are now at a much higher interest rate, possibly even higher than you were paying before.

There is another drawback to this method of consolidating debt. Say that you actually did get your $10,000 limit you were hoping for. You pay off those two credit cards, freeing yourself from them. Well, maybe not. Open credit cards, which we keep around for emergencies, just in case, have a way of coming out of our wallets. It is common for people to start adding charges on the newly cleared cards. In addition, you still have about $4000 on your new credit card. Why not add some charges there as well. What’s another few thousand? Maybe we don’t consciously think that, but it does play into our decision making.

Yet another reason why you should avoid using credit to pay off debt: some people hop from card to card. Even if you do manage to keep up with your payments and avoid new charges, it can still damage your credit score. Every time you apply for a credit card, it affects your credit. Eventually, creditors will look at your report, see all the activity, and decide that you are a poor risk. If you can get credit, it will be at higher interest rates. When going from card to card, many people do cancel their previous cards. But that, too, can have an effect. On your credit report, it can appear that the creditor closed the account, which is detrimental to your credit score. If you do choose a new credit card, cancel the old one and request that the creditor report the account as "closed at customer’s request."

Instead of paying debt off with more debt, look into other options available to you. Consumer debt consolidation plans may be the way to go.