Is this method of consolidating debts a good idea?
If you are considering using a credit card as a debt consolidation option, there are several important factors to keep in mind. While a low-interest credit card may seem appealing, it often comes with conditions that require careful consideration. Always read the fine print to fully understand the terms and conditions before applying for a new credit card to consolidate your debt.
For instance, imagine someone borrows $12,000 on a low-interest, introductory rate credit card (3.5%) for 12 months. They could potentially use this $12,000 to pay off a higher-rate card. However, it’s crucial to assess whether this is a viable option.
Know Your Budget and Plan to Pay Back What You Borrowed, Plus Interest
To benefit from such an offer, the borrower must plan to pay off the entire $12,000 within the 12-month period. This means they would need to repay the borrowed amount plus interest, which amounts to approximately $420 for the year. The total repayment would be $12,420, resulting in a monthly payment of $1,035 when divided over 12 months.
However, affording a monthly payment of $1,035, in addition to managing other debts and living expenses, may be unrealistic for many individuals.
Be Mindful of Changing Credit Card Interest Rates
It’s also important to note that the terms and conditions of the card may indicate that only the balance transfer (the $12,000 used to pay off another credit card) is subject to the 3.5% rate. Any additional purchases made on the card could incur the regular interest rate, which often exceeds 19.99%. After the 12-month introductory period, the annual interest rate on the entire balance typically escalates to this standard rate as well.
Contact Us for More Information About Credit Card Debt Consolidation
For many individuals, exploring other debt consolidation options may be more beneficial than relying solely on a credit card. If you need assistance evaluating your options to make an informed decision that won’t lead you deeper into debt, contact us to speak confidentially with one of our counselors. We’re here to help.
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