Bad Debt Management

What They Don't Tell You
About Credit Card Debt Consolidation

Because credit card debt consolidation is relatively easy to do, many people try it. There is no collateral involved. There is very little paper work compared to most types of debt consolidation loans. However, there can be a lot of risk involved.

Here’s the typical scenario. When a person gets to the point that their credit card debt is out of control, they try to figure out how to simplify their financial stress. After studying the various credit card debt management services, credit card bill consolidation is usually a high consideration.

However, without any collateral, a debt consolidation loan is hard to get. This is where consolidating one’s debt with a credit card comes into play. Typically, the person transfers all of their credit card debt onto one credit card. Then, they only have to deal with one bill and one company.

The Good News
It does sound good… and there’s still more good news. Many credit card companies offer a no interest period when you transfer all you loans to their card. It’s quite common to get a twelve-month grace period. That means you pay no interest for a full twelve months. Every payment you make is strictly paying down your debt with no additional interest. 

It still gets better. At the end of the twelve-month period, your interest rate is usually lower than what you were previously paying. So, with only one company to deal with, no interest and a lower interest rate after twelve months, what could you loose?

The Bad News
At the end of the twelve-month period, your interest rate will go up. It will usually be at least 10-12 percent. If you only make minimum payments during your first twelve months, you will not significantly benefit from credit card consolidation. To maximize this option, you should be able to pay much more than a minimum amount during the first twelve months. 

Your real education is in reading the fine print. There are potentially some significant risks with credit card consolidation.

Carefully read and review the terms of service agreement. Be sure to focus in on the section about payment default. It usually discusses three important points.

• First, what will happen if you make a late payment?
• Second, what happens if a payment doesn’t process (go through) correctly?
• Third, what happens if you go over your line of credit?

In most of these instances, your interest free twelve-month period is immediately terminated. You will immediately begin paying interest with your next credit card statement.

However, that’s not all. The interest rate you will be charged is generally higher than the interest rate originally offered at the end of the twelve-month period. Check very carefully. The interest rate could be higher than what you were previously paying before you consolidated your credit card debt.

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