If you didn’t already know it, we now live in a consumer society driven by easy short-term unsecured debt. Most of this is denoted in the form of credit card debt, with nearly all of us having to-hand more than one credit card on which to call when the kids want those new sports shoes.
The fact is though, credit card debt is expensive to fund – interest rates are high, and there is nearly always some form of credit-usage fee in our account statement. To counter this, below we look at 5 reasons why you might want to exercise the option to consolidate your credit card debt:
Because interest rates are high
The principal reason why most people consider switching credit cards and consolidating all of their outstanding credit card debt into one card is because the interest rates on their existing credit card are just too high.
Here, as you may be aware (from all the advertising that is thrown at us), not all credit card issuers offer the same interest rate (although they are closely related in a broad spectrum). Moreover, in this highly competitive market, some credit card issuers now offer significantly lower rates of interest than some of the other more “traditional” credit card issuers.
So, if you think that it is going to be financially beneficial to you to consolidate all of your existing outstanding credit card debt into one credit card debt that is offering a lower interest rate, which will equate in significant savings, this may well be a very sensible option to take.
Because of the annual fees
A common trend among credit card issuers over recent years has been to ask members to pay an annual usage fee for the credit card. In certain cases this annual fee can be expensive – especially where you may make use of more than one credit card and are faced with having to pay several annual membership fees.
However, credit card issuers now know they’re in a fight to get new customers and so some of them are offering use of their credit card without you needing to pay any annual membership fee and not asking members to pay an annual membership fee is a second worthy reason why you may want to consolidate your credit card debt.
Do, however, keep in mind that if you consolidate credit card debt because of this issue, make sure that the credit card issuer has not accounted for this by adding other hidden fees or a higher rate of interest on the card – otherwise you may find that the overall cost of funding the debt adds up to more per annum than if you just pay the annual fee with your existing credit card issuer!
Consolidating the credit card debt as a personal loan
It is a sad fact of life that many of us do not know how to budget our spending on our credit cards. We see the limit on our cards and seem to think that we have to spend all of this money in the next 24 hours, otherwise they may take the card away from us! We then spend the next 4 years trying to pay back all the debt we just accumulated. All of this stress is then compounded by the fact that we have to make, at minimum, the minimum monthly repayment to the credit card company.
To avoid this, and to try and find a way to source our debt at a lower cost many of us turn to the option of consolidating all of our outstanding credit card debt as a personal loan, which we then pay back monthly.
Although both of these debts are similar in nature, i.e. unsecured, the personal loan method is much cheaper than the credit card debt. So, if you have credit card debt outstanding that you believe will take you more than 1 year to repay, the time may well have come to consider the third reason why it may be more beneficial to consolidate your credit card debt as a personal loan.
Because we now have a bad credit rating
Those of us who allow our existing credit card debt concerns to get on top of us, to the extent where we are no longer in a position to make the monthly minimum repayments, have sadly just come across the fourth reason why you may want to consolidate your credit card debt – because you now have a bad credit rating.
Because they’re paying me to do it
The last reason why you may want to consolidate your credit card debt into one debt is because the credit card issuer is paying you to do it. Believe it or not, the credit card industry has now become so competitive that issuers are fighting among themselves to get people to sign up to their card. Here, when the card issuer knows you have an existing credit card, they’ll sometimes ask you to transfer the balance of your outstanding existing credit card debt to them, in return for which they’ll reduce some of the debt from your outstanding balance. Be careful though, those warning signs regarding interest rates and fees still apply.