Info about Debt Consolidation
Consolidate Credit Cards
Many people want to relieve their debt burden, especially in today's economy. One way to do this is to consolidate credit cards by using credit card debt consolidation services. On average, American households have about $8,000 worth of credit card debt, spread across multiple credit cards. Consolidating their cards may help people pay off debt faster, lower the total debt they have to pay, and simplify monthly bill-paying.
When Not to Consolidate Credit Cards
Consolidating credit cards may be beneficial, but only if moving a balance to a card with a lower Annual Percentage Rate (APR). If all current cards have the same APR, transferring between them doesn't make much sense – shifting balances from one card to the other won't lower the total amount of interest payments. Given that some companies charge a fee for shifting balances, this may actually leave people worse off. And though it may simplify bill-paying, reducing the number of bills – instead of reducing the amount one has to pay – shouldn't be the primary goal.
Balance Transfers
The most common way to consolidate credit cards is by balance transfer, either between current cards or to a new card with a lower rate. People pay a lower APR on the balance, saving money over the long-run. Those savings can be significant. Moving from an APR of 12%-24% down to less than 10% can add up to thousands of dollars saved. But be sure to note any balance transfer fees, even if small. Some companies charge as high as 4% of the balance – that's quite a hefty sum when transferring large balances. On a $7,500 balance, a 4% fee would amount to $300. Some credit card debt consolidation services do limit their transfer fees to $25 or $50, however. Balance transfers can be advantageous so long as people pay attention to details.
Balance Transfer Cautions
Many companies offer very low introductory rates, sometimes even 0%, to entice people to transfer a balance. But the hidden costs can be significant. It's essential that people read the fine print and look for the catch. For example, that low introductory rate is only for a certain amount of time. Make sure that when it ends, the new APR isn't higher than the APR on the previous card. Also determine if that low APR applies to new charges or only to the balance transfer. Many credit card offers include a late-fee provision that negates the benefit of consolidating credit cards. That low initial rate is often applicable only so long as one pays on time. A single late payment can increase the APR by 15% or more, plus late fees. And remember, not everyone qualifies for the low introductory rate; people must first be approved by the credit card company.
Waiting for a Balance Transfer
Balance transfers may take 2 to 4 weeks to process. While waiting for the balance to be transferred, continue to make payments on old cards. People hardly need a $29 late fee or other penalty when trying to pay down debt. When the new card credit card debt consolidation service says the balance transfer is complete, call the old card companies and double-check. Document the conversation, just in case. Experts often say to wait until the old card company sends a billing statement with a $0 balance. Then cancel the old cards. It can be tempting to put purchases on the old cards despite their high interest rates. Canceling them eliminates this temptation.
After a balance transfer, people need to stop themselves from charging more. Consolidating credit cards is not a license to rack up more debt; don't fall into this vicious cycle. Make it a priority to pay down the balance transfer before the introductory rate expires. So long as people make wise decisions, it's very beneficial to consolidate credit cards. It helps put them on track to a solid financial foundation.
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