Most cards charge balance transfer fees and require good credit scores and high incomes to qualify.To improve your chances of getting one, add up all potential sources of income — including money in your savings account and 401(k) — and list that total on your application, not just your salary, Tydlaska says. These tactics may help, but financial experts say paying off debt requires a more comprehensive plan.Consolidation works best for high-interest-rate debts such as credit cards.Consolidating your debt is only the start of a long process. “In order for consolidation to work well, there has to be a clear plan of attack,” Isaac says.A basic budget allocates money for debt payments, an emergency fund and contributions to retirement savings, but that isn’t enough when consolidating, says Lara Lamb, a certified financial planner at California firm Abacus Wealth Partners.Successful budgeters avoid adding debt by accounting for infrequent expenses, such as car registration fees, as well as times of the year when expenses run high, like the holidays, Lamb says. “People will go on a spending ‘diet’ and then feel like they’ve restrained themselves for so long that they go out and splurge,” Lamb says.“A realistic budget gives you enough to spend on things you value and you love.” A cardinal rule of consolidation is not using your credit cards as you pay off debt.
Locking away cards doesn’t mean closing accounts, which could hurt your credit.
There are several reasons for this: empirical studies of consolidation employ different analytical approaches to data; older data in some studies yield results that may not be representative of current district conditions; studies do not uniformly separate costs related to merging only a narrow range of district services from costs related to merging entire districts or combining schools; different studies focus on different costs or estimate costs in different ways; and much of the literature consists of advocacy.
However, while the literature on consolidation may not provide a direct road map for making decisions, it does provide a useful overview of issues, together with estimates of cost savings and cautions for those going forward with consolidation.
The one exception to the no-use rule is a nominal charge on your card every few months — paid on time and in full — to keep the account active and your credit intact, says Shawn Tydlaska, a certified financial planner at California firm Ballast Point Financial Planning.
Balance transfer cards let you shift over debts from other cards and charge no interest for a limited time — the best ones offer from 15 to 21 months — after which a double-digit interest rate kicks in.
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