Jan
6
One Simple Way of Consolidating Credit Card Debt
If you’re not careful about managing your debt, it can easily get out of control. One of the most burdensome financial problems for consumers today is credit card debt. As a result, millions of credit card customers are looking for ways to better manage their financial responsibilities by consolidating credit card debt. It’s important to get a good handle on your credit card accounts and ensure that you haven’t extended yourself beyond your means, but you need to be careful. If you don’t approach this with great care, consolidating credit card debt itself can sometimes create even more financial hardship.
A very simple and easy way of consolidating credit card debt is to transfer the balances of your higher rate cards to one or more credit cards with lower annual interest rates. You may have, for example, several cards with balances of a few hundred (or few thousand) dollars each, and annual interest rates in the 17 to 20 percent range, or even higher. If you move those balances to a card that carries a 
lower interest rate, you should be able to save a significant amount of interest expense. If you moved the balances on your higher-rate cards to a different card that carries only a 13.5 percent interest rate, you’d save a lot of money over the course of a year. Even by reducing the interest rate by a few percentage points, you can save significant real dollars — certainly enough to consider this as a method for consolidating credit card debt.
But before you jump the gun and transfer that balance, think for a second. There are a some pitfalls that you may overlook when consolidating credit card debt in this fashion, and you need to consider them before taking action.
The "teaser" rate:
Many credit cards that offer lower interest rates only offer them as a "teaser" or introductory rate. A few months down the road, when the teaser rate expires, the credit card’s annual percentage rate may increase significantly. You should be certain that you understand exactly when and by how much the interest rate will increase when the teaser rate expires. It’s possible you could save money for a few months, only to end up paying a higher rate than you originally had once the increase takes effect.
The "empty card" syndrome:
If you do decide that consolidating credit card debt by moving your existing balances to a lower-rate card is something you want to do, you need to be aware of "empty card" syndrome, and have a plan to deal with it. Suddenly, you’ll have a higher-rate card with a zero balance. Many people fall victim to the "empty card" syndrome and find themselves charging things again on that newly empty card, just because it’s convenient and has no balance. If you’re not careful to avoid this mentality, then you may find yourself right back where you started in no time. A better plan would be to put that card away in a safe place and resolve to only use it in the event of a serious emergency. Otherwise, your decision to try consolidating credit card debt may come back to haunt you.
For some people, consolidating credit card debt by moving balances to a lower-rate credit card is a great way to save money on interest. If you decide to try this, beware of the dangerous pitfalls of empty card syndrome and teaser rates. Manage your credit and debt wisely, or you may find yourself in serious financial trouble.
Comments
Leave a Reply
