Consumers are using credit cards for debt consolidation. Historically, credit cards were created to give consumers the benefit of purchasing merchandise on credit. It is by no means free money. In most cases, interest is charged in addition to the initial amount borrowed. Debt consolidation offers have turned major credit card companies into a multibillion dollar industry. In the past, credit cards were not easily obtainable to the average consumer. Currently, Visa, MasterCard, Discover, and American Express are persistently enticing consumers to apply for a line of credit for debt consolidation. These major credit card companies are advertising low interest rates that are supposed to help consumers to get out of debt. Many consumers use 0% interest rate credit card offers for debt consolidation with the hopes of getting out of debt. Is it wise to use tempting low interest credit card offers for debt consolidation?Credit card companies are determined to persuade consumers that opening a new line of credit with a low interest rate can help them to get out of debt. There are some things to consider before using a low interest credit card for debt consolidation.
Read the Fine Print.
Most low interest credit card offers come with an introductory low interest rate. This introductory rate typically is for up to 12 months, in most cases. The pitfall of agreeing to the terms of a low interest rate credit card is not reading the fine print. The offer may sound attractive at first, but the consumer could suffer detrimental consequences later. After the introductory rate ends, a new interest rate is applied to the line of credit. In some cases, the new interest rate results in a higher interest rate than the consumer was paying before the balance was transferred over. This doesn’t pose a problem for the consumer if he/she paid the entire balance before the introductory rate ended. Unfortunately, very few people are disciplined enough to do so.
Protect your credit score. Opening a new line of credit can lower your credit score. Consumers who have obtained a lower interest rate are tempted to make more purchases. Unfortunately, this can have an adverse affect on their debt to income ratio.
The Pitfalls of 0% Credit Card Offers. The average consumer is not disciplined enough to pay the entire balance off before the end of the low introductory interest rate. As a result, the credit card only served one purpose. It gave the consumer time to avoid making substantial payments on the overall balance.
Debt consolidation can save on interest payments and accelerate the process of paying off debt for a disciplined consumer. However, using a credit card to speed up the process of getting out of debt can be considered an oxymoron when you run the risk of getting further into debt. Fortunately, there is another alternative to credit card debt consolidation. Consumers can take advantage of government incentives. Some government grant programs are designed to help individuals who are in over their heads in debt. This free money is available to help individuals pay bills, high interest credit cards, living expenses, and more. Why risk getting further into debt by opening up a new line of credit? As a federal taxpayer, you are entitled to government incentives.
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