Tips on Consolidating Credit Card Debt

Here are a few good tips from soundmoneytips.com on what to look out for when consolidating credit card debt. Keep in mind that the point of this article is to lower and keep low your credit card debt. It is not about how to increase your credit score. Tip 5 may actually reduce your credit score. Overall, these are good tips.


Tips on Consolidating Credit Card Debt

From Soundmoneytips.com

Credit card debt is the number one financial problem of Americans today. The average household has a credit card balance of about US$8,000 over multiple credit cards and store cards. This balance is at its highest after the holidays, when most of us have racked up major credit card bills on gifts. If you are carrying one too many big balances, there are some things you can do to lower your debt. Be sure to consult our Sound Money Tips Guide to Credit Cards for answers to all your credit card queries.

Meantime, the most common form of credit card debt consolidation is to transfer the balance of all your credit cards onto one card with the lowest interest rate. This can save you thousands because APRs (Annual Percentage Rates) that are 12%-24% can get reduced to 10%, 8%, 6% or even 0% - and consolidating has the added bonus of combining all your payments into one easy, fixed monthly sum. Still, there are lots of “fine print” traps. Look out for these top tricks of the credit card consolidation trade:

1.Balance-transfer Fees – Some issuers charge transaction fees as high as 4 percent for balance transfers so that the higher the balance, the higher the transaction fee. Other credit card companies cap transfer fees at $25-50. Still other cards only waive fees for "initial balance transfers," then treat every subsequent balance transfer as a cash advance and charge the greater of $2.50 or 2.5% of the transaction amount as a fee.

2. Teaser Rates - Be sure to ask how long the introductory rate lasts, and find out

what the card's annual percentage rate is after that teaser rate expires. If possible, it’s best to focus on paying down the transferred balance before the teaser rate expires. Does the teaser rate apply to transferred balances or new purchases or both? And last but not least, do you qualify for the super low-rate? While an offer may boast a 3.9 percent teaser rate that bumps up to 17 percent after six months, a person may only qualify for a card with 7.9 percent teaser and a regular annual percentage rate of 21 percent.

3. Late Payment Problems – It may only take one slip-up for that super-low rate to disappear. For example, you may start with a 9.99 APR, but one tardy payment bumps the rate up to 21.99. What about late fees and over-the-limit fees? Does that card have an annual fee?

4. Double Check - The new card company may send a notice saying the balance transfer is complete. But be sure to call the old card company to verify this. The old company should send a billing statement with a zero balance. If they don’t, request it.

5. Cancel Old Card(s) - First off, plenty of people out there have trouble avoiding the temptation of an open credit line. Second, too many open lines of credit can affect a person's ability to qualify for a mortgage or a car loan. Lenders view any open credit lines on all unused credit cards sitting in a consumer's wallet as potential outstanding debt.

6. Stick With It - Consumer experts urge people who transfer balances to a low-rate card to stick around for a year or more. If you jump from card to card you can’t build a credit history, and that can really damage your credit.