The Importance of Credit Card Consolidation

What is Credit Card Consolidation?

Credit card consolidation is a financial maneuver undertaken by those individuals stricken with credit card debt or high interest rates.

The process of credit consolidation is initiated to lower one’s monthly payments by transferring the balance of one credit card to another card that possesses a lower interest rate.

Credit card consolidation is a means to alleviate credit card debt specifically caused by high interest rates and fees. Credit card consolidation is recommended for those individuals who possess a considerable outstanding balance on a credit card that possesses a high APR, obscene usage fees and other costs that are considered undesirable.

Why Should I partake in Credit Card Consolidation?

The APR attached to a credit card refers to the interest payments an individual must make for any balance that remains unpaid. For instance, if an individual possesses a credit card with a high APR of 35% and has an outstanding balance of $1,500, he or she is required to pay, in addition to the $1,500 or minimum payment, an additional $43.50 in interest. This interest payment, over time, will keep adding up, assuming the individual never satisfies the complete credit balance.

This exposure to a high interest rate could result in severe credit card debt. To avoid this undesirable situation an individual can initiate a credit card consolidation, which would effectively transfer the $1,500 to another credit card with a lower APR or interest rate.

In addition to achieving a lower interest rate, credit card consolidation streamlines your monthly payment obligations. In essence, the debt of one card is coupled into the payment obligations of another card. As a result, your debts are grouped together into one larger debt.

This agglomeration enables you to make singular monthly payments to satisfy your credit card obligations. By combining debts, credit card consolidation exposes you to only one interest rate and diminishes your annual fees by eliminating the previously crippling credit card.

The majority of money management experts or credit counseling agencies will suggest that these consumers transfer high-interest balances to low interest credit cards. That being said, credit card consolidation must be undertaken with a distinct understanding of your credit card’s particular terms. The majority of credit card companies will charge fees for transferring balances. In addition, possessing a plethora of credit cards may actually complicate your future exposure to debt.

Credit Card Consolidation and Balance Transfers

A balance transfer credit card will allow holders to undertake what is known as a ‘balance transfer’ with regard to a preexisting, outstanding credit card balance. A balance transfer involves the movement of a balance incurred on one credit card onto a new credit card.

Through the undertaking of a balance transfer, the balance – ranging from a portion to the entirety of the preexisting balance – will be transferred to the new credit card. However, while Balance Transfer Credit Cards prove to be valuable and economical instruments for certain individuals, associated rates, interest, and charges should be investigated prior to engaging in balance transfers.

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