People in severe credit card debt often want to know whether they should consolidate their debt. Experts do not always agree on the merits of debt consolidation. It may not be necessary to consolidate if your outstanding balances all have identical interest rates.
Recently, four of the largest credit card companies have hiked interest rates for those who enter a debt management program. Citibank, First USA/Bank One, MBNA and Household Credit Services are all on that list. MBNA recently increased its interest rate by over half from10% to 15.9%. This increase alone will cost a cardholder in $10,000 debt an additional $1,022 over three years. One credit card company (Chase Manhattan) lowered its interest rate for credit counseling clients. So if you are in credit card debt
get it under control, now!
Let's have a look at an example: If your debts on two different cards total $4000 at an interest rate of 16% it makes no difference if you place the total amount on one card at the same rate of interest. Taking out a cash advance is likely to cost you more money too as most credit card companies will increase your interest rate and charge a transaction fee for the pleasure. So, in many cases credit card debt consolidation
will not save you money!
Credit card debt consolidation is not going to help reduce your interest rate or extend the term of a loan. Why not? Credit card debt is open-ended or revolving credit. This means that moving balances around is not going to give you more time to pay your loan.
It is ever a good idea to consolidate your credit card debt? It may be a good idea if one credit card totaled the minimum amount payable as a percentage that is less than that of the outstanding balance. If you want to make money available on a monthly basis then it may be a good idea. It may help you pay more than the minimum and in so doing get your debt levels down.
Making a balance transfer to a lower interest credit card can help you make an impact on your debt because more of what you pay each month goes to what you owe, rather than footing the bill for finance charges. However many credit card companies are now placing restrictions on this kind of credit card debt solution. You might want to do it now and pay down your debts while you still can. Credit card issuers that charge the lowest interest rates include Bank of America, First North American National Bank (FNANB), Mellon Bank, and US Bancorp.
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