Debt consolidation and credit card advances

More and more Americans are finding themselves burdened with financial trouble that they can't pay off. A good portion of this outstanding debt consists of credit card balances. With rising heating fuel and gasoline prices, along with increased required payments on credit card bills, more and more individuals are finding it more difficult than it used to be to eradicate their debts. The number of lenders dedicated to offering debt consolidation products is soaring to meet the growing market caused by mounting debt among Americans. A growing number of credit card companies are providing debt consolidation loans to their customers so that they may entice them to relocate balances to their card from other cards. Is using your credit card account to consolidate debt a smart way to go?

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While the credit card companies make a small amount of money through the 1-2% fees they charge stores and restaurants at the time of sale, the majority of of their profit derives from the interest payments that they receive from customers. More and more credit card companies are offering their customers debt consolidation loans and an option to help avoid debt. The credit card business is a hugely profitable business, so why not extend it towards "aiding" borrowers get rid of other debts by providing a debt consolidation loan? Why not offer people the opportunity to transfer significant debts from other cards to the one they provide? Rates of interest on many varieties of loans are fairly low, but for credit cards, the rates have a tendency to be at least twice as high.

There are several things to ponder if you are considering transferring outstanding balances from a number of different credit card accounts to only one credit card for debt consolidation reasons:

• Is the interest rate set, or is it a variable rate? Variable rates may change suddenly; you desire to be aware of just how much your bills might go up, particularly if the amount of debt you are repaying amounts to thousands.
• Read the fine print. Many, if not most credit card terms of service indicate that the business can raise your interest rate at any time, for any reason. The only requirement is that the businesses provide you with two weeks' notice. To be clear, any such offer, even one that is for the "life of the loan" is in essence only useful as long as the business says it is.
• Does this account have a universal default clause? Should it, the penalty rate could apply when and if you pay late to anyone. Paying the cable TV bill late could trigger the penalty rate on your account. This would effectively negate any benefits you might receive from the low consolidation offer.
• What is the penalty, or default interest rate? Bank cards have a penalty rate that can apply any time you make a late payment. Penalty rates have a tendency to be depressingly high; your "low" consolidation rate could be replaced by a 30% penalty rate should you make a late payment.
• The company could agree to provide you a sensible interest rate for the "duration" of the debt consolidation loan, or they may offer a rate that is just short term. Make sure that you are aware what the interest rate is and when, or if, they might increase it.

These solicitations may sound enticing, but keep in mind - they are offered by the lender or creditor for their benefit, not yours. They are marketing these solicitations to you because they are certain that they are able to earn profit off of it. Can you do better by acquiring a loan from your credit union or bank? You might get a lower rate of interest and one that is permanently fixed from a different lender. Check around first.