Why to Consolidate Credit Card Debt

By: Paul Hockney
Submitted: 2008-04-21 21:10:27
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Since credit card debts don't have defined loan end dates, revolving credit can stay with you for what seems like forever if you just make the minimum payments. 

If all the cards have the same interest rate, then there is no need to consolidate these balances into one debt. For example if you have £3,000 outstanding on two credit cards at 18%, then there is no saving in having the balance on one card at the same interest rate.

Most credit card agreements have much higher interest rates for cash advances and they also charge a nominal fee for the cash transaction, so it is not going to be a less-expensive approach to paying off the credit card debt.

People typically look to debt consolidation to reduce their interest rate or even extend the term of the loan. Credit card debt is really open-ended, so shifting balances from one card to another isn't going to extend the term of the loan.

About the only real reason to consolidate these balances is if one credit card calculated the minimum payment as a lower percentage of the outstanding balance than the other and you are trying to free up some funds in your monthly budget. You're trying to pay things off, so you should try and pay more than the minimum payment each month.

A balance transfer to another credit card at a lower interest rate could help you pay off the card balances much faster as more of your monthly payment would be going towards the main debt instead of finance charges.
But the credit card companies are getting smarter in putting up ways so that cardholders don't keep moving on to the 0% introductory rates that so many credit card companies now offer. So make sure you understand the 'small print' credit terms and balance transfer charges if you decide to take this approach.

Conclusion
Credit card debts can cause a lot of financial stress simply because it is so easy to accrue debt on these cards, and it can take forever to repay. The danger time comes when you haven't done the maths and at the end of the 0% period, there is not enough in your savings to pay the card and all of a sudden you have credit card debts you didn't really want.

A debt consolidation loan can help get you out of the credit card debt hole but you have to couple this with less usage of the credit card. Otherwise you will start the vicious cycle all over again.

Paul Hockney is an online loan advisor who provides help on getting low rate debt consolidation loans online.

Article source: Expert Articles

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