Credit Cards to Help Consolidate Debt
As a form of loan, consumers can use credit cards to consolidate other debts. Credit card debt consolidation offers differ widely, so you should always read the terms of the offer carefully and compare them to other offers before choosing a credit card debt transfer.
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Credit Card Consolidation
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When you use a credit card to consolidate debts, you usually do so through the use of a balance transfer offer. A balance transfer is when you us your credit card to pay off other credit cards you have. For example, if you have two credit cards with balances of $3,000 and $4,000, you can use a balance transfer offer to pay the balances on those two cards. By using your credit card to pay the balances, you add $7,000 to the new card in the transfer.
Transfer Offers
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Though balance transfers are a form of consolidation loan, they usually come with incentives to entice borrowers to apply for the new credit card, such as low interest rates. For example, a credit card might offer new applicants an introductory rate of zero percent interest for 12 months on any balance transfer. The nature of these incentives changes frequently and differs widely between card issuer, so wise consumers should take some time to shop around for the best offer.
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Limited Terms
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The low interest rates offered with credit card balance transfer offers are temporary. Once the introductory offer period ends, the low interest rates that applied to the balance transfer end. Any remaining balance, whether from the transfer or from new purchases, are subject to the regular interest rate. These too differ widely depending on the card offer, so if you plan on keeping the balance for longer than the low-interest term, you should always make sure you know exactly how much the card issuer will charge you in financing.
Transfer Fees
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Consumers often see the low interest rates offered by credit card consolidation balance transfers and think that it's a great deal. However, the balance transfer interest rate isn't the only factor you need to consider. The card issuer usually charges a fee for the transfer, either as a single flat fee or a percentage of the total amount transferred. For example, if you transfer $7,000 in debt and the card comes with a 4 percent transfer fee, the credit card company will add $280 to your bill.
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