Debt Consolidation For Credit Card Balances



Debt consolidation for credit card balances comes in two main forms:

Form 1) balance transfers to a new credit card

Form 2) debt consolidation loans, to bring together the balances of multiple credit cards under one unsecured loan

Let's look at the pros and cons of each one and see which, if either, is right for you.

See more articles on credit card debt consolidation here.

Balance Transfers

Many credit card companies offer new customers a low-interest, or sometimes even an interest-free, grace period of around six months. This is under the conditions when that customer transfers an existing balance, or balances, from other credit cards to their new card.

The Pros and Cons:

  • Pro - A good way for you to avoid a few months of interest
  • Pro - If you're smart, you can keep transferring balances to new cards
  • Con - Another card means the potential to get deeper into debt later
  • Con - You'll have to be careful not to miss a payment, or you'll lose the benefit of the grace period and may be liable for penalty payments

What's in it for the companies? (This is an excellent question!)

The company giving you the grace period and hopes that, at the end of the six months, you will not pay off or transfer the balance. Therefore, you will instead begin making small payments against the balance putting money in the companies pocket. That means they will begin earning interest from you, potentially for a long time.

You do need to have discipline to avoid losing the benefit of the transfer and should cancel the new card once you have paid it off or transferred it again. This helps you to avoid the temptation of building up a new debt headache. Then, it would be harder to transfer balances, because your credit score will most likely be lower.

Credit Card Consolidation Loans

Just like other debts, you can apply for an unsecured loan to bring all your credit card balances under one loan. This is a better option for people who have trouble keeping track of multiple bills and payment dates.

Pros and Cons:

  • Pros - The APR (annual interest rate) of loans can be lower than credit card interest rates
  • Pros - You'll have just one monthly payment to make and one debt to keep track of
  • Cons - Clearing your existing cards opens up a new amount of potential debt for you to run up
  • Cons - Avoid SECURED loans: transferring credit card debt onto your mortgage is too heavy a risk. You could lose your home

What's in it for the companies? The credit card companies would prefer you to maintain a balance on your card forever, so they can charge you huge interest. By paying off your cards with a loan, you are denying them this income.

Don't expect them to give up on you as a customer! You'll probably get written to with offers to increase your credit card limits, for auto or other personal loans. be very careful of tempting offers here!

Once you get a new cosolidated loan under one payment, don't take chances with yourself. Cut up the cards you pay off, write to the companies and ask them to close the accounts and not to write to you again.

The last thing you want to do is consolidate your existing credit card debt with a loan, then run up new balances on the old cards. You will have more of a debt mess then when you first began.

Further reading

You can seek the services of a credit card debt consolidation service. Click to read more about this option.

See more articles on credit card debt consolidation here.

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