How to manage your credit cards and get out of debt
We all have resources to rely on when money is tight. Credit cards, bank lines of credit, and loans are usually available. But debt is something that has to be managed and understood, and can easily get out of control if you're not careful.
Owing money (maintaining a balance) on your credit cards in particular is among the most burdensome financial problems for consumers today, and consequently millions of credit card customers are searching for ways of consolidating credit card debt as a means to better manage their financial responsibilities. Watch carefully for these opportunities and understand what the obligations are of consolidating debt.
While it is important to get a good handle on your credit card accounts and ensure that you haven't spent and now owe beyond your means of repayment, 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 and the transfer is a very easy process.
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 higher.
In first glance it is obvious that 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 and a lower monthly payment.
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 go slow! Read what you are agreeing to 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:
The "teaser" rate:
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" syndrome:
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.
Consolidating credit card debt by moving balances to a lower-rate credit card is one possible way to save money on interest, but beware the dangerous pitfalls of teaser rates and empty card syndrome.
Credit and debt have to be managed wisely, or you may find yourself in serious financial trouble.
More Resources
- Living On A Dime - Financial Independence Through Better Life Choices. Publisher Of E-books About Paying Off Debt, Saving Money, Frugal Cooking And Homemaking.
- Everything You Know Is Wrong! About Being Debt Free That Is!! And It Will Keep You In Debt The Rest Of Your Life!
- CREDIT SECRETS BIBLE™ - If You Can Read And Write at the 5th Grade Level Then YOU Can Discover The Secrets To Raise Your Credit Score up to 249 Points In 90 Days... So You Can Start Being APPROVED For The CAR, HOME, Business Loans, and CREDIT CARDS You Deserve!
