Can I Still Use My Credit Card After Debt Consolidation?

Can I Still Use My Credit Card After Debt Consolidation?

You can typically still use your credit card after debt consolidation as long as the account remains open, has available credit and is in good standing. When you consolidate credit card debt, you're paying off your existing balances using another financial product, such as a:

• Balance transfer credit card, which moves your existing balances to a new card, often with a 0% introductory annual percentage rate (APR) period.
• Debt consolidation loan, which pays off your credit cards and replaces them with a single fixed monthly loan payment.

When you reduce or completely pay off your credit card balance, the card could be used to cover new purchases. This can help if you need access to credit, but it can also make it easier to fall back into old habits and take on too much debt.

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Should I Use My Credit Card After Debt Consolidation?

Using your credit card after consolidating debt isn't recommended, especially soon after consolidating. If you continue to make new charges and can't pay them off right away, you could find yourself juggling both a new debt consolidation loan and new credit card debt. This can erase the financial benefits of consolidating and leave you in a worse position than before. If you max out the card again, consolidating new debt may not be an option.

Why You Shouldn't Use Your Credit Card After Consolidation

Using a credit card after consolidating your balances, can create several challenges.

• You may incur new debt. Making new purchases that you can't repay quickly can cause you to rack up high credit card balances.
• You may create more pressure on your budget. Adding a new credit card balance to your existing debt consolidation loan can increase your monthly debt obligations and the overall interest you pay.
• You may negate balance transfer benefits. If you used a balance transfer credit card to consolidate, new purchases may not qualify for the promotional interest rate and could start accruing interest immediately.
• You may negatively affect your credit. Having a credit card with no balance reduces your credit utilization rate, which tends to have a positive effect on your credit. Rebuilding that balance will do the opposite.

When Using a Credit Card After Debt Consolidation Could Make Sense

While it's best to complete debt payoff—the goal when consolidating credit card balances—before you use your credit card again, there may be situations where using a credit card can be reasonable.

• You can afford to pay your balance in full each month. This way you avoid paying interest and accumulating new debt.
• You need to take advantage of specific credit card protections. Many credit cards offer protections that you don't get with debit cards, including fraud protection, travel benefits and extended warranties. For some purchases, like booking travel, using a credit card is beneficial because it provides additional safeguards.
• You can take advantage of a promotional offer. If you have a low promotional APR offer, using it to transfer a high-rate balance or make large interest-free purchases can lower interest costs.

Learn more: Pros and Cons of Debt Consolidation

How to Use a Credit Card Responsibly After Debt Consolidation

If you decide to use a credit card after consolidation, careful budgeting and consistent repayment can help you avoid slipping back into debt.

• Create or update your budget. Consolidating debt will affect your monthly debt payments. Reviewing and adjusting your budget can help you understand how much you can realistically spend while staying on track with repayment.
• Avoid carrying a balance. Paying your balance in full each month helps avoid new interest charges and keeps your debt from growing. It can also help you earn rewards and keep your account active.
• Track your spending closely. Monitor your spending and check your balance throughout the month. This helps ensure you're staying within your budget and can pay off the balance when your next statement arrives.
• Make your payments on time. Payment history is the biggest factor in your credit score. Setting up automatic payments or reminders can ensure you never miss a due date and avoid late fees or penalty APRs.
• Avoid impulse or unplanned purchases. Before making a purchase, consider whether it fits within your monthly budget and whether you'll be able to pay it off before interest accrues.

Tip: You may be able to temporarily lock your credit card after consolidation to prevent impulse purchases. Your account remains open, but you remove the ability to overspend.

The Bottom Line

Debt consolidation can be a useful tool for paying off high-interest credit card balances, but it doesn't eliminate the risk of accumulating new debt. You can typically still use your credit cards after consolidation, but it's important to be responsible to stay on track with your debt payoff.

Tracking changes to your credit can be helpful as you pay down your consolidated debt. You can use Experian's free credit monitoring service to access your Experian credit report and FICO^® Score^Θ to stay on top of your credit.