Credit card consolidation is a pretty simple theory to understand. For people with credit card debt across multiple cards, this option is one that you should be exploring to reduce your payment burden. Credit card consolidation is also the fastest way to pay down your principal.
Here is a short example of what I mean. Let's say you have 3 credit cards. They each have about a $500 balance and carry varying interest rates between 10 and 19%. These may seem high, but credit cards have high interest. With interest rates this high, it may be difficult to pay down your balance before the interest builds up. Now, let's say you decide to go with credit card consolidation to a single 6% interest credit card. Obviously, your credit card consolidation has resulted in a single card with a $1500 balance, but with an interest rate of only 6%. This means that you can pay the same amount you are used to and more will simply be applied to your principal, instead of just paying off your interest.
The most important, last step to credit card consolidation is this – rip up your old cards once they have been consolidated. Do not let yourself get into the same situation again. Say goodbye to those high rates forever once you have completed your consolidation.
|Jennifer Mathes, Ph.D.|