Credit Card Consolidation

Credit Card Consolidation

Credit card debt consolidation was a concept that most people had no exposure to until quite recently. Sadly, for far too long, well-intentioned people with high credit card balances were forced to pay punishing interest rates, or face legal action and bankruptcy filings. Mercifully, this has all changed thanks to credit card debt consolidation.

Credit card debt consolidation is the process by which higher interest-rate bearing credit card debt is transferred to lower interest-rate cards. Thanks to increased competition among credit card issuing banks and merchants, credit card debt consolidation options abound. Basically, credit card companies want to recruit new business - and if they can do so at the expense of their competitor who loses some business, all the better. As such, most credit card companies are willing to offer credit card debt consolidation options to new customers who switch, and even to existing customers to keep them from leaving.

Why does credit card debt consolidation work? Simply because it translates into one of two things for cardholders. It either means lower monthly payments due to a lower interest rate, and/or more payment being applied against the principal of the credit card loan. For example, if a cardholder was paying $100 per month on a high-interest credit card, that same $100 a month can be applied after credit card debt consolidation with more going towards the principal. This, in turn, will pay off the loan faster.

While credit card debt consolidation is an attractive option for virtually all borrowers who carry a balance, and not necessarily those who are in trapped in a debt situation, it’s important to note that some balance transfers come with expiry dates. For example, transferring $5,000 of debt on a 20%/annum interest rate credit card to a 10%/annum credit card will makes sound financial sense. However, this new credit card - the one with the 10%/annum rate - may only be valid for a year, or perhaps even less. After that point, the interest rate may rise, perhaps even back to the 20% rate. Borrowers must therefore be careful that when they exercise a credit card debt consolidation option, that they pay close attention to the “fine print” if any, to determine the expiry date (again, if any). Knowing this information well ahead of time can be the key to making shrewd financial moves and enjoying the benefits of credit card debt consolidation long into the future.

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