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Two Options To Consolidate Credit Card Debt

In the current recession, consumers are searching desperately to consolidate credit card debt.

Many ultimately decide to consolidate debt with some sort means to consolidate credit card debt.  Debt consolidation requires the borrower to examine the type and amount of credit card debt before ultimately selecting the option that is right for his circumstances.

Often, borrowers realize that essentially they have a choice between a credit card balance transfer or a debt consolidation loan.  The advantages of one over the other depend mostly on the number of unsecured personal loans versus the amount of credit card debt and the borrowers’ credit score.

Interest Free Balance Transfer

An interest free balance transfer credit card is an short term debt consolidation solution.  At the end of the initial term, the consumer would have to search out another interest free credit card consolidation offer.  However, there are three problems in using short term balance transfers for credit card debt consolidation.

The 3-4% Balance Transfer Fee. If the consumer is lucky, the balance transfer fee would be capped at $50 to $75 dollars.  However, some credit card issuers have been removing the caps on balance transfer fees.

A Good Credit Score Is Essential. If the consumer has missed a payment or made a late payment on any other bill, credit card issuers are unlikely to approve the application.

The Interest Free Period Is Short. The consumer is betting that he or she will either be able to pay off the credit card debt before the end of the time period or transfer the remaining credit card balance to another interest free credit card.

As such, the interest free credit card should be reserved for those that can pay off the balance within six to twelve months.

Unsecured Debt Consolidation Loans

A long term alternative is to consolidate debt with a low interest debt consolidation loan.

The unsecured debt consolidation loan takes the complication out of credit card debt relief.  Consolidate loans in a way that combines many small balances and obligations to one with a (hopefully lower) monthly payment.

Even though it is not an in interest free credit card, the debt consolidator does get the advantages of (1) a single low monthly payment, (2) the positive credit entries showing all other debts as paid; and, (3) the inability to charge more, thereby never getting the debt paid.

Short Term Or Long Term Debt Consolidation Solution?

If you have a small amount of credit debt, then an interest free credit card is a good option for you.  But be prepared for a balance transfer fee and be able to produce a good FICO score.

For longer term solutions to credit card debt, then an unsecured debt consolidation loan is the preferable choice.  However, note that credit counseling services advise against using a HELOC to get out of debt.  The debt consolidator will be paying interest on impulse purchases for twenty to thirty years – and that makes no sense at all.

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