Your Options for Debt Consolidation
The need for debt consolidation is a reality for millions of Americans. The temptation of credit cards can become too much to resist for many people and before they know it, they are in need of a debt consolidation loan or credit card. But there are many common pitfalls that people can run into when seeking the best deals for debt consolidation. Here are a few helpful tips to keep in mind if you are considering debt consolidation.
The most common method people use for debt consolidation is a credit card. Many cards these days specialize in debt consolidation. They have high credit limits that are designed specifically for transfer balances. But not all cards are created equally. The first thing you need to look for is the interest rate that is attached to the new card.
Chances are, if you are considering consolidating your debt to one card, you have several balances spread out over several cards, all with different interest rates. In most cases, some of the rates are much too high and others might be more reasonable. This is why you really need to watch the interest rate on the card you are being offered. You need to make sure that you will, in fact, save money on interest by switching your balances to this new card. A trap that many consolidation cards try to get you to fall into is that they offer low introductory rates to entice you to transfer your balances, and then, six months later, the rate goes sky high and you are stuck looking for another card to transfer your balance to.
Don’t get caught by this game. Make sure you read over all of the credit card application, including the disclosures on the back that spell out all of the fees associated with the card, as well as how long the introductory interest rate lasts and what the rate will spike to once it runs out.
Another confusing aspect to consolidation cards is the sudden rise in card companies utilizing duel interest rates. These cards use one interest rate for balance transfers and another interest rate for new purchases. These cards can work especially well for balance transfers since they tend to have a much, much lower rate for balance transfers, and it can even be a fixed low rate, then they do for new purchases. What the credit card company is hoping for is that you will still use the card for new purchases, and they will make their money that way. If you can exhibit the self control to simply use that card for paying down your balance transfer, these cards are an excellent way to go.
One important tip for debt consolidation is to make sure you do not close out credit lines once you have transferred your balance from them. The reason is by closing off these lines, you are reducing the amount of total credit you have available to you, and, in turn, you are then utilizing a higher percentage of you total available credit. That may not seem like a big deal, but it turns into a big, black mark on your credit score. If one of your old credit lines charges you an annual fee, call the credit card company and let them know that you will cancel the credit line if they do not cancel the annual fee. In most cases, credit card companies will happily do without an annual fee if it means keeping you as a customer.