What does consolidating mean and how can it help you financially?
Consolidating, also known as balance transfer, means combining several
outstanding credit card debts into one. By doing this, you effectively wipe out the
debt to all your current credit card providers by paying them off with
your new credit card.
Now, of course you still owe the money, but the debt is owed to only
one credit card provider.
Even if your credit is marginal, there are plenty of credit card
providers competing for your business and who will offer to consolidate
your debt. Shop around to see who will give you the best deal.
Usually credit card suppliers will offer an incentive by giving you
an introductory low or even zero interest rate for a given period of 3
to 6 months or longer. Here is where you can save money by actually not
paying any interest on your current debts. All the payments you make
during this period will go directly to reducing the total amount owed.
The things you need to be aware of when consolidating to one credit
card are the initial APR (annual percentage rate), the length of
time of this introductory rate and finally, the standard rate you will
be charged once the initial low rate period has expired.
By taking advantage of a low or zero % interest rate and paying the same
amount you would have normally paid to all your previous accounts, you
will have saved all that interest and therefore reduced your combined
credit card debt. This in turn means that once the standard interest rate
kicks in, your remaining balance will be lower and your total monthly
required payment will be considerably less than before.
Now that you have taken steps to reduce your balance owed, you should take
further action to see that you will get out of debt as soon as possible.
Always pay your new consolidated credit card bill on time. Make your payments a little more
than the minimum bill to reduce the interest on subsequent payments because
everything helps. Most important, whenever possible, use cash to pay for
purchases and checks to pay bills instead of your credit card.
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