Credit Card Consolidation – Is It Always The Right?
Credit card debt can easily mount up, especially if you have access to multiple credit cards. The ease, the temptation, the access to finance is sometimes hard to resist and, even with the best of intentions, sometimes the full balance isn’t paid off and the longer this goes on the harder it is to clear the balance and hence the need for credit card consolidation.
Credit card debt is flexible but not cheap and if it’s built up to a great degree, it MAY be in your interests to transfer the balance to a loan. If you’re considering this though you must make sure it’s the right thing to do, that it’s affordable and that it’s in your interest from a financial point of view. We strongly suggest that you consult an independent financial adviser before making any decision.
Credit card consolidation involves adding up all your current credit card balances and replacing them with one single combined debt and is usually done in one of two ways:
1: Consolidate credit card balances spread over several credit cards by transferring to a new, single credit card that often offers a low initial interest rate or interest free period on balance transfers – hence making it a viable proposition. Be careful to establish what happens when this honeymoon period is over though to ensure you’re not worse off.
2: Consolidate multiple credit card balances into a single, monthly repayment loan. If you’re doing this though make sure that it works out financially favourable and once you’ve cleared those credit cards then cut them up otherwise you could end up with a loan AND rising credit card balances again! Also, if the combined balances are high, you may need to provide security to guarantee the loan which may mean putting your home at risk so you owe it to yourself to seek advice first.
There are many credit card providers out there who want you to transfer balances and consolidate cards to them. That’s why they offer low interest transfer rates and incentives but don’t forget that’s how they make money – they don’t want the person who will pay off their credit card account in full each and every month, they only make money on those who don’t and the bigger the balance the more money they make. So, that’s why they offer the incentives to transfer balances – they know they’ll make money when the initial period comes to an end.
Debt or credit card consolidation sounds attractive and an easy way out but it’s not always the right thing to do. That’s why we always suggest that you get professional advice before deciding what to do – other options exist which may be better for you.
This is especially true when you’re in debt or dealing with rising personal debts – it may be better to consider debt management options rather than turn to additional finance.
Always remember, debt consolidation, including credit card consolidation, does NOT solve a debt problem, it merely transfers it elsewhere or makes it more affordable, hence it could, and often does, make the situation worse.