Should You Do a Credit Card Consolidation?

Credit card consolidation is when you have a large amount of debt that is branched out in several different credit cards, loans, mortgages, and other form of credit, and you take all of those forms of debt or credit, and you “consolidate” them into one big form of credit. In many cases, consolidating your credit card debt is not a bad idea, but in others, this type of solution only makes things worse.

Say you have three credit cards, all on which you have a balance within a seventy-five percent range of your credit limit. Besides that, you have a mortgage on your home that you are only six years away from paying off after a twenty year mortgage plan. You are thinking about debt consolidation, and you want to know what would be the best way to go about it. It is important to know what kind of debt consolidation possibilities exist out there, and to know just which one is going to get you out of debt faster with the least amount of risk.

Option 1: Low Interest Rate Credit Cards

When you think about consolidating your debt, this may be one of the best ways in which you could do it. Shop around for a new credit card that has a great interest rate that you could easily pay a large balance on. These kind of credit cards could be a great solution to your old, high interest rate cards if you are disciplined enough to pay your bills on time and not rack up the debt on this new credit card too.

Be careful, though, because sometimes these credit card interest rates are too good to be true. You need to know if the low interest rate you got on your card will change over an extended period of time, because sometimes these rates are only introductory. Credit card companies use teaser rates to get people interested in their cards, then eventually the new and wonderful card is not so wonderful anymore, leaving you in more of a tight spot than you were to begin with.

Option 2: Home Equity Loan or Line of Credit

This option can be very risky. By putting your credit card debt into your home, you basically say, “If I do not pay my bills, you can have my house.” Be careful when you consolidate your debt into your home, and be completely certain that you will be able to pay your bills on time and with ease. If you do this, consolidating your debt into your home equity line of credit will be a great solution, because the interest rates are usually much less in this case than with credit cards.

Option 3: Debt Consolidation Loan

Getting a loan may be the solution for you. However, you must know first if you will really be paying less. Because of your financial trouble, you may not be qualified for a low interest rate, therefore you end up paying just as much or more than you did before.

0% APR Student Credit Cards

This can be a complete success or a complete disaster. A lot of this will have to do with how frugal you are with your credit cards and how aware you are of your credit situation. Many students can go through a great deal of trouble because they don’t realize that this amazing interest rate can vanish instantly.

A credit company only has to give you a 15 day notice before they drop the hammer and the interest rate goes from 0% to anywhere between 15% and 30%. You could see a higher interest rate because they considered the grace period a big favor for you, but in reality it is just a pain in the butt because you might have piled up debt that you can only make minimum payments on and then you have no way to pay it off after they bump up the interest rate.

That is why it is important you go over the Terms and Conditions and find out if there are any changes that could happen during the next year or as long as you have the card. Sometimes you can find cards with 6 months or a year of guaranteed no interest. This can be a huge opportunity for you to leverage someone else’s money if you have some good strategies in place.

I personally got into a lot of debt after a failed business experience. It was a lot for a college student anyways. I felt as though I had no way out. I was at square one and I had to find a job and just try to get out of debt. Well I had gotten a cash advance of $10,000 for that year and I had to make some changes. I didn’t realize this until about August when I was down to about nothing and I had until the end of the year to pay off the line of credit. So I started improving my spending and found a good job. My situation improved, but I realized that it wasn’t going to happen by December of that year. So I found another company that gave the exact same opportunity for 12 months with a 0% APR. I took advantage of it and used the cash advance of this company to pay off this other card and it bought me another 12 months. Within the first couple months I was out of the hole and I was able to pay off the second card.

So you see that this can be a great opportunity to buy you some time to find out your financial life as long as you realize the terms of the card. Next you have to make sure you spend wisely and live a well budgeted lifestyle for your income. If you can do this then you will find 0% APR credit cards a blessing and not a curse.

Compare Student Credit Cards

Credit Cards are a commodity product. What does that mean? Commodities are products that are really only differentiated by the price and terms of the purchase. A mortgage is a commodity product, as are homes, cars, cell phones – you get the idea.

Why do I bring up commodities? Because when you’re going to compare student credit cards you have to understand there probably won’t be much difference between them when it comes to rates, fees, etc. You’ll want to dig a little deeper for the intangible benefits offered by the different card providers.

Let me give you an example:

I read a review from a young man in the UK that had applied for a graduate student credit card with Barclay. He wasn’t happy at all. He had three main complaints: 1. They asked for a letter proving his status as a graduate student, then didn’t accept the letter he sent them. 2. Their customer service center was located in India, which on its own might not have been a huge problem, but the agent he spoke with seemed to give him a lot of attitude and spoke with such heavy accent that they couldn’t even understand each other. 3. They finally approved him for the card, but only gave him a limit of about $500. His feelings? “What’s the point?

Near the end of the review he also complained about the high interest rate. Lastly he mentioned having transferred all balances to a Virgin credit card.

What’s the lesson? I’m guessing this guy initially liked the idea of opening a student credit card with a notable company, looking to build his credit score and his credit history. What he got was a lot of hassle and he ended up with a credit card he didn’t even use in the long run.

I strongly recommend reading some reviews online of the customer service a credit card company offers. Just because you’re a college student looking for an opportunity to improve your status as a credit holder doesn’t mean you have to settle for mistreatment by the company you’re generating a bunch of revenue for. Find a card that treats you well. I’ve had great experiences with Bank of America’s customer service.

Compare Rates for Student Credit Cards

So let’s say you’ve found a couple of companies offering student credit cards that have great online reviews for how they treat their clients. At this point it comes down to price and limits. That means getting down to the cold hard numbers – what interest rates are they offering on balance transfers and purchases? How big of a credit limit will they give you? Do they charge application fees or an annual fee?

Once you know they’re going to treat you right, and you know the numbers make sense, go for it.