Debt consolidation and credit card borrowing to fix it

The number of lenders dedicated to marketing debt reduction products is expanding to meet the demand created by by increasing debt among Americans. With skyrocketing heating fuel, natural gas, and gasoline prices, along with increased mandatory payments on credit card bills, more and more borrowers are finding it more difficult than ever to pay down their bills. Growing numbers of Americans are finding themselves with financial obligations that they cannot pay off. A good portion of this debt has been borrowed from credit cards. A increasing number of credit card companies are offering debt consolidation loans to their clients so that they may entice them to move debts to their card from other cards. Is employing your Discover to consolidate debt a wise way to go?

Why not offer customers the opportunity to transfer sizeable debts from other accounts to the one they offer? Although the card lenders earn a small amount of money by means of the 1-2% fees they charge stores and restaurants at the time of sale, the majority of of their revenue derives from the interest income that they receive from customers. The credit card business is a profitable business, so why not extend it towards "aiding" people eliminate other bills by providing a debt consolidation loan? Interest rates on many kinds of loans are somewhat low, but for credit cards, the interest rates tend to be at least twice as high. Increasing numbers of credit card banks are offering their customers debt consolidation opportunities and a choice to make it easier to avoid financial trouble.

There are many items to ponder if you are thinking about transferring debts from a number of different credit card accounts to just one credit card for debt reduction purposes:

• What is the penalty rate of interest? Credit card accounts have a penalty rate that can be applied any time you pay late. Default interest rates tend to be very high; your minimal debt reduction rate might be replaced by a thirty percent penalty, or default rate should you pay late.

• Is the rate fixed, or is it a variable interest rate? Adjustable rates can adjustment with little notice; you want to be in the know of just how much your payments might go up, especially if the amount of money you are repaying adds up to thousands of dollars.
• Does this account have a universal default clause? If it does, the penalty rate may apply when and if you make a late payment to any company. Sending in the phone bill late could trigger the penalty rate on your credit card account. This would effectively negate any benefits you might receive from the low consolidation offer.
• The company may offer you a sensible interest rate for the "duration" of the loan, or they may advertise one that is just short term. Make sure that you understand what the rate is and when, or if, they could change it.
• Read the cardmember agreement. Most credit card documents note that the company can raise your interest rate at any time, for any reason. The only requirement is that they provide you with two weeks' notice. In short, any such offer, even one that is for the "life of the loan" is in fact only in effect as long as the company is OK with it.
• Can you do even better by acquiring a loan from your credit union or bank? You might get a better rate of interest and one that is permanently set from another lender. Check around first.

These solicitations may sound appealing, but remember - they are advertised by the company for their benefit, not your own. They are extending these loans to you because they think that they can make money off of it.