People who have credit card debt often hear the advice to consolidate their debt. So what does ‘Consolidating Credit Card Debt’ involve? Put simply, consolidating credit card debt means consolidating (or combining) the debt on a number of different credit cards into one or two credit cards. This consolidation can be done either by a low-interest bank loan or by transferring the debt balance to a new credit card.
So what should you do when looking to consolidate your credit cards? The key thing to look for is the APR or Annual Percentage Rate. In either method mentioned above the Annual Percentage Rate or Interest Rate will always be the key, in fact you could say that it is the sole criteria that you should look at. If you choose a bank loan to consolidate your credit card debt the interest rate on the loan should be lower than the interest rate charged on the credit cards that you are consolidating. Similarly if you are changing over to another credit card to consolidate your debt the interest charged on that card should be lesser than the rate charged on the cards that you are consolidating.
There is a catch that you must be aware of when planning to consolidate credit card debt. The Annual Interest Percentage Rate advertised by most credit card suppliers are short term rates only, designed to lure you into consolidating your credit card debt with them. By short term we mean that these low rates of interest will only apply for a initial period of less than twelve months or some other time frame after which the Annual Percentage Rate will increase. When you go to consolidate your debt with these credit card suppliers they will offer you a low percentage rate (possibly even 0%!) for the first six to twelve months after which a much higher interest rate will be charged. You should always check what this higher interest rate will be after the ‘honeymoon’ period. For your consolidating to be effective the rate must be lower than what you are currently charged by your card suppliers. You may also be able to negotiate a lower Annual Percentage Rate from your current card supplier if you tell them that you are interested in consolidating your credit card debt, which of course is a lot easier for you to do than hunting around for a suitable credit card offer.
Before you make the decision to consolidate your credit card debt you must understand that consolidating the debt will only be beneficial if you pledge to adopt and follow a disciplined approach to your credit card usage, meaning controlled credit card spending and regular/timely payment of amounts owing.