Credit card debt consolidation

When someone talks about "consolidating credit card debts", they could mean one of two things. They could mean consolidating their credit card debts with a debt consolidation loan, or they could mean transferring their balance from one card to another. Either way, it`s all about credit card debt - and consolidating it.

Debt consolidation loans - consolidating credit card debts

One way of handling credit card debt is to take out a debt consolidation loan - a new loan which can be used to pay off credit card debt (and any other unsecured debts, from overdrafts to store cards and personal loans).

A debt consolidation loan can be a good way of making credit card debts and other unsecured debts more manageable. Making one repayment per month is simply easier than making multiple payments, and that means borrowers are less likely to forget to pay on time (or at all).

Plus, debt consolidation loans can come with much lower interest rates than other forms of credit, especially credit cards, which often charge around 15-20%.

Debt consolidation also gives people a chance to decide on a sensible way of repaying the debt. Basically, they can look at their monthly finances and figure out how much they can commit to paying - a figure that`s low enough to be realistic, but high enough that they can clear the debt as soon as possible.

Remember: a credit card`s low minimum monthly payments might look like a good feature, but they can mean a relatively small debt takes many years to pay off.

Transferring credit card balances - or ‘DIY debt consolidation`

Many people with credit card debts realise they`re paying a lot of interest on that debt. Since a lot of credit cards offer a 0% rate for an introductory period (often around 15 months), they can avoid paying interest by getting a new card and shifting one or more existing credit card debts to that new card. Once that introductory period is nearly over, they get a new card and do it again.

Some people see this as a kind of ‘DIY debt consolidation`, but there are drawbacks...

First of all, credit card companies will charge a balance transfer ‘handling fee` of 3% or so. If someone`s ‘carrying` a £3,000 debt, it`ll cost them £90 to do this. Of course, they`ll also have avoided many hundreds of pounds in interest charges, so there`s a lot to be said for credit card balance transfers.

However, it`s extremely dangerous to assume there`ll be more credit cards available. If they can`t get a new credit card for any reason, they`ll need to find another way of managing that debt - or start paying the full interest on the full balance.

---

Think Money provide a range of debt solutions, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements). If you are struggling with debt, contact one of our expert debt advisers now.

Related:

Debt consolidation & credit cards

Tags: credit card, debt, debt consolidation, credit card debt consolidation, debt consolidation credit card, credit card debt

Our initial advice on your best financial solution is free. Fees payable when continuing service is provided. Calls may be recorded for training and quality purposes.