Debt Consolidation with a Low-Interest Credit Card: 4 Reasons to be Cautious

By Barbara Marquand
Mortgage Credit Problems Columnist

Many credit card offers tout zero percent interest in big, bold type to get people to apply for accounts and transfer balances -- a mighty temptation for anyone struggling to meet minimum payments on high-interest credit cards.

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But the devil is in the details, or in this case, the small print of the credit card agreement. Here are four things you should know before you get another credit card for debt relief.

1. Debt Consolidation with Low-Interest Credit Card: Can You Qualify?

Credit card companies check your credit history just as any lender does to decide whether to extend credit and what interest rate to charge. Many credit cards feature tiered rates with the highest rates for those with poor credit and the lowest rates for consumers with excellent credit. That's why credit cards boast introductory rates "as low as" the advertised rate. Even if you qualify for the credit card, you might not qualify for the advertised bargain. Don't count on zero or low interest until you have the new account and confirm the rate in your credit card agreement.

2. Short Window to Pay Off Credit Card Debt

The low introductory rate won't last long. After several months, the rate jumps, and you're stuck again with expensive credit card debt. Check the terms for the interest rate that will go into effect after the introductory period, and make sure you have a solid plan for paying off a lot of the debt during the low-interest period.

3. Debt Consolidation Isn't Free

Most credit cards charge fees for transferring balances, usually a few percentage points of the transferred amount. Calculate how much it will cost to make the transfers. Don't apply if the fees offset the value of the low interest. Also, make sure the low interest applies to the transfers, not just to purchases.

4. New Credit Card Spending Temptation

Be painfully honest with yourself. Can you apply the discipline necessary to pay off a substantial portion of your credit card bill, or will a new credit card simply lure you deeper into debt? Because more credit often encourages spending, financial experts advise to focus on paying off debt rather than moving it around.

A cash-out refinance or home equity loan are other options for consolidating credit card debt. You can get more information on debt consolidation loans using home equity by filling out the form on this page. Meanwhile, get budgeting help from a reputable credit counseling service if you're struggling to make ends meet.



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