Credit Card Debt Consolidation - How Effective Is It?

A credit card is considered a desirable thing to have. There are many reasons for applying for one – convenience, good financial standing, increased purchasing power among others. In addition to these, there are two other common reasons.  One is in order to establish credit in the first place, if you have very little credit history. The other is as a means of consolidating debt.  

In both of these situations, the candidates are not usually seen as a good risk for obtaining a loan. People with no credit history often find it as difficult to obtain loans as people with a bad credit history. Sometimes in this situation, credit card debt consolidation can be a more attainable solution.

Getting credit without any credit history can be a problem. If an emergency arises when you urgently require funds, and you have no credit, you have a problem. Therefore, you need to take steps to build a credit history before an emergency arises. Possible steps you can take to do this include: opening checking and savings accounts at local banks; obtaining gasoline and store cards – these are often easier to obtain than major credit cards; taking out a small personal loan from your bank or credit union and repaying it over time. If the payments are made regularly it will help establish a credit history. You may then find it easier to go down the road of credit card debt consolidation if it is required.

Credit card debt consolidation also has its pitfalls, and you need to consider this step very carefully. In the first place, it may seem sensible to apply for a low-cost or zero percent card. But these special rates may not be available for those with a poor credit history – which you may have, if you are already struggling with debt. In addition, the rates may just be “teaser” rates for a limited period, at the end of which the rates may suddenly escalate to more than you are already paying. You need to make very sure you know whether and when the special rate will end, and whether it will be possible to move to another card before the rates change. Bear in mind too that applying for new credit cards every few months is very bad for your credit history.

Another point to remember in credit card debt consolidation is that these low rates only last as long as payments are made on time. Just one late payment and the rates will shoot up – probably to an even higher penalty rate than you would otherwise have been paying.

A further pitfall is that credit card debt consolidation only works if you are absolutely meticulous and disciplined about making your payments. What’s more, in order to make any real inroads into your debt, you need to make a substantial payment each month. This will be very difficult if you are struggling financially. But if you make only the minimum payment, there is a real danger that your debt will grow rather than diminish.

A different type of card you can get is the prepaid card. With this you deposit a sum of money into the card and use the card like a credit card. Strictly speaking it is not a credit card but a top-up card. You can apply for one without having much of a credit history or without many credit checks being made. However, these cards usually carry a fee, so they are really not much use for credit card debt consolidation.

Having a credit card is not only desirable, it is essential in today’s world. Apart from being required for many purchases, credit cards are often used as identity checks, for example at airline check-ins. So there are all sorts of excellent reasons for getting a credit card. However, credit card debt consolidation may not be one of them. If this is your reason for wanting a card, think very carefully as it could land you in a worse situation than you are already in.

Whatever you do, plan your finances carefully. If you still need to consolidate your debt, please take your time to learn as much as you can about it, especially the interest rate they are charging you and also at the very least find out how much the monthly repayment will be. The easiest way to know about these figures is by using debt consolidation calculator. By knowing these basic figures, you'll know the amount that you could afford to pay and whether or not to proceed with credit card debt consolidation solution discussed above.