Credit Card Consolidation Mistake 2
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As part 2 in our article series outlining common pitfalls to avoid in unsecured credit card debt consolidation, today we will discuss common credit card debt consolidation mistake number 2: ignoring fees, charges, and other hidden expenses.
Read the Fine Print
No matter what debt consolidation option you choose, it is important to know exactly what fees and charges will be incurred. If you ever feel that a company is being too vague, or will not explicitly state what fees and charges will be applied, then there is a good chance you may not want to do business with that organization.
When deciding to consolidate their credit cards and unsecured debt, many people tend to focus only on interest rates. All too many people mistakenly believe that simply getting a lower APR (annual percentage rate) means getting a better deal. Unfortunately, things are not so simple.
Whether you are consolidating your credit cards with a balance transfer, an unsecured loan, or a home equity loan, you may be charged significant transaction fees, origination fees, or other types of charges. It is important to factor these fees into your decision, as any savings you gain with a lower interest rate may be eroded away by these fees.
Will the Interest Rate Remain Low?
Even when simply comparing interest rates, it is important to look deeper than the simple numbers. Find out if your new, lower interest rate will be permanent or just a teaser rate that will expire after a fixed time period. It is also important to find out if your new interest rate will be fixed or variable; if it is variable, you may still end up paying more interest after consolidating.
Finally, you will want to know what happens if you miss a payment or default. This is particularly a problem when you transfer your balances to consolidate your credit card debt, because nearly all credit card companies can raise your interest rates to extremely hight “default rates” if you miss or are late on a single payment. In fact, many creditors can raise your rates even if you miss a payment on a seperate, unrelated account (universal default clause)!
By considering all the terms and conditions and weighing the costs of any fees and charges, you will be able to make a much more informed decision, which should help you save more money with your unsecured credit card debt consolidation.
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[...] Not Accounting for Fees and Other Expenses [...]
[...] this tips can help you avoid making costly mistakes when you begin the process of consolidating and getting out of debt. Be sure to do your homework [...]