by David L. Foster
If a consumer is not careful, debt that is not carefully managed can get out of control. Credit card debt in particular is among the most burdensome financial problems for consumers today, and consequently millions of credit card customers are looking for ways of consolidating credit card debt as a means to better manage their financial responsibilities. While it is important to get a good handle on your credit card accounts and ensure that you haven’t extended yourself beyond your means, consolidating credit card debt itself can sometimes create even more financial hardship if you don’t take great care in how you approach this significant financial issue.
One very common form for consolidating credit card debt is to transfer the balances of your higher rate cards to a credit card that has a lower annual interest rate. For instance, you may have two or three credit cards with balances of a few hundred (or few thousand) dollars each, and those cards may carry an annual interest rate of 17 percent, 18 percent, 20 percent, or even more. Obviously you should be able to save a significant amount of money each year in interest by moving those balances to a card that carries a lower interest rate. For example, you may be able to transfer the balances of those higher-rate cards to a different card that carries only a 13.5 percent interest rate. Even on a balance that is currently being charged only a few percentage points higher, such as 17 percent, you will save significant real dollars — certainly enough to consider this as a method for consolidating credit card debt.
But let’s not get ahead of ourselves. Before you immediately transfer that balance, there are a number of pitfalls that you may overlook when consolidating credit card debt in this fashion, and it is important to consider them before you move your money:
Teaser Interest Rates:
Some credit cards offering lower interest rates may only be offering them as a “teaser” or introductory rate. That means the credit card’s annual percentage rate may increase at some point in the future, when the teaser rate expires. You should check carefully to make sure that you understand exactly what the rate will be in the future as you pay down the balance you transferred from the original card.
The “Empty Card” Effect
If it turns out that consolidating credit card debt by moving the existing balances to a lower-rate card will work well for you, then you really need to make sure you have a plan to deal with the higher-rate card that will suddenly have a zero balance. Too often people can fall victim to the “empty card” syndrome and find themselves charging things again on that newly empty card, simply because it has no balance and it offers a convenient payment method. If you fall victim to this mentality, then you may find yourself right back where you started in no time. Instead, put that card away in a place where you’re not likely to use it, unless faced with a serious emergency. Otherwise, your decision to attempt consolidating credit card debt and saving yourself some money in interest may come back to haunt you.
One possible way to save money on interest is consolidating credit card debt by moving balances to a lower-rate credit card, although consumers should beware the dangerous pitfalls of teaser rates and empty card syndrome. Credit and debt have to be managed wisely, or you could face the unpleasant reality of finding yourself in serious financial trouble.