Credit Card Debt Consolidation

Posted on June 25, 2008
Filed Under Credit Cards |

‘Credit card debt consolidation’ is a phrase that you will have come across often. There are hundreds of websites with advice on credit card debt consolidation. Every now and then your local newspaper will also contain an article or advice on credit card debt consolidation. TV programs host discussions on credit card debt consolidation.
In addition, there are numerous consultants and companies which provide professional advice on credit card debt consolidation. So what is this “Credit card debt consolidation” that everyone is talking about? Why is it such an important topic?

“Credit card debt consolidation” refers to consolidation of the debt on various credit cards into a single credit card (or a couple of credit cards), or possibly a bank loan. Generally, you move from a higher APR (interest rate) credit card to a lower APR one. You might ask ‘why?’

If you look into how the vicious circle of credit card debt works, you will immediately understand the logic behind credit card debt consolidation. Credit card debt grows in two ways - due to addition of new debt on account of fresh spending on your credit card, and due to addition of interest charges to the existing credit card debt. The first type of increase is due to your use of credit card, but the second one is due to interest charges which are calculated on the basis of the interest rate or the APR applicable to your credit card.

A lower APR rate means that your credit card debt will grow at a slower pace and hence switching over to a card with lower APR makes perfect sense. You always want to be paying the lowest possible interest rate.

The process of credit card debt consolidation can be referred to as a balance transfer process (you transfer the balance or debt from one credit card to another). Credit card issuers make the credit card debt consolidation balance transfer offers even more attractive by associating various benefits with them. The simple logic behind offering these benefits is the fact that such a customer would be defecting from one of their competitors.

The biggest benefit offered by these credit card suppliers is 0% interest on balance transfers (or credit card debt consolidation). This 0% APR is generally applicable for a short period of time i.e. 3-6 months, after which the standard APR is applicable. Other credit card debt consolidation offers include things like interest free purchase for a short period, reward points, etc. These credit card debt consolidation offers make the exercise of credit card debt consolidation even more logical and meaningful.

Of course, to really get on top of credit card debt, you need to get rid of credit cards altogether. This means doing your credit card debt consolidation via bank loan, rather than another credit card, and it also means cutting up those plastic debt traps and resolving never to use them again.

Credit card debt consolidation seemsto be a good way of tackling the problem of credit card debt and that is the reason why there is so much of discussion on the topic of credit card debt consolidation.

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