How does the concept of debt consolidation work? Especially as it applies to credit cards?

March 2nd, 2009 | by admin |

  1. 2 Responses to “How does the concept of debt consolidation work? Especially as it applies to credit cards?”

  2. By flasteve on Mar 5, 2009 | Reply

    Basically, you apply for a credit card that offers a good balance transfer offer. The website offers many good balance transfer credit cards. There is 1 that offers 0% for 18 months.

  3. By Robin K on Mar 6, 2009 | Reply

    Debt consolidation and balance transfers are two different things. If you’re looking to consolidate debt, a low interest personal loan is probably more along the lines of what you’re looking for. While you won’t have the lowest rate out there, you will have one bill, a fixed amount to pay each month, and at the end of the loan, the debt will be paid off. There are some good ones out there, just look around and weigh your options carefully.

    Balance transfers done on brand new accounts usually have a teaser rate of 0% for about a year, then the regular apr will apply. Keep in mind that you will also pay a fee for the transfer on most accounts, roughly 3% up to the max amount stated by the company for each transfer done. If the person in question has low credit limits on their current accounts and they are carrying balances near that line, the chances that you will be able to find a company willing to transfer the entire amount is low. You’ll be asking them to take on a $10K balance with little to no interest being paid and in return they will only make a small amount off of the fee. Balance transfers have very low profitability, so issuers don’t like to treat them as “consolidations” because they know they’ll take a loss on the amount unless the person doesn’t switch over to another issuer once the teaser rate expires.

    If you go the balance transfer route, keep in mind too, that you won’t know what limit will be approved, so you won’t know ahead of time if you will be able to do the entire balance transfer or not. Don’t give the transfer info upfront, because if it’s not enough to transfer the entire amount, they’ll go ahead and transfer as much as the limit will allow, leaving you with more than one bill and a hit on your credit for the inquiry.

    With the info you’ve given here, the debt consoliidation loan sounds more like what you would need. At least with that, there’s no guessing what your payment will be, what your interest rate may change, and you’ll know when the debt will be completely paid off.

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