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Dealing with Credit Card Debt - Should I Consolidate? |
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Most people are aware the disadvantages, and even dangers, of handling too many things at the same time. Whether it’s with work, family, or relationships, having too much on one’s plate takes away focus, making one less effective for any of the tasks concerned. However, people tend to overlook this nugget of wisdom when it comes to managing their credit cards. The average person is said to hold as many as seven credit cards at a time – all of which are being actively used. Just keeping track of expenses made is difficult enough. But then one still also has the unfortunate task of keeping track of the varying interest rates for every card – a difficult task, even for experienced credit card users. Unfortunately, when these complicated but important tasks are left unmanaged, interest can accumulate until one finds out, a bit too late, that they have incurred a considerable amount in debt. Fortunately, there are solutions to that problem. One of which is credit card consolidation. It is a basically putting together the balances from different credit cards and paying it off with a single card of a lower interest rate. This solution works allowing the person in debt these advantages: 1. Payment manageability This solves the problem of needing to keep track of different payments for different bills. This alone helps alleviate anxiety as a single statement tends to overwhelm a person less, compared with a series of bills. 2. Lower interest rates By transferring your balances to a lower interest card, you stop the accumulation of higher interest from other cards and avail of a lower finance charge for your consolidated debt. However, that said, this solution is not a general fix-all for all debt holders. Considerations need to be made before credit card debt is consolidated. Part of it starts by taking stock of how one got into the situation in the first place. This means looking at the present collection of credit cards and their interest rates. If they all have the same rate, then consolidation may not be necessary. Another consideration is the usage for these cards. Ideally, credit cards should be used only to bridge gaps in cash flow. But when it becomes the primary method to pay for food, utilities and other bills, the solution may need to be more than simple consolidation. More serious and in-depth financial counseling may be necessary. It is also important for one to choose wisely as to which credit card will be used to consolidate other cards with. Simply going for the one with the lowest interest rate may not be the best solution. One has to be able to see well into the next 6 to 12 months as the debt is paid off. Will the lower interest rate hold for that duration or will it increase rapidly within that time? A manageable rate is generally around 15%. Consider the duration of the grace period for each card. Availing of the lower rate may not be possible if payment is not made by due date. The length of the grace period then becomes helpful as it allows more time to pay without incurring additional finance charges. In general, a 25-day grace period is a good offer. Furthermore, remember that consolidating credit card debt is just part of the general debt management program. Another important aspect is preventing further debt, which means significantly lowered credit card use. Many fall into a false sense of security because of having only to deal with one account statement. One then begins to use credit cards again as carelessly as before, therefore perpetuating a vicious cycle. As it is with most things, credit cards are simply tools that can be mastered rather than the other way around. This can be prevented if discipline in managing one’s resources is learned and honed and applied in all future transactions. |
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