Debt consolidation
A friend of mine asked me if it is a good idea to consolidate his credit card debt into one low interest monthly payment. Truthfully I have no clue how it works with the credit card debt. Any idea about how it works and if it is really worth it? I think his credit cards…
A friend of mine asked me if it is a good idea to consolidate his credit card debt into one low interest monthly payment.
Truthfully I have no clue how it works with the credit card debt. Any idea about how it works and if it is really worth it?
I think his credit cards where charging him 12.99% interest.
The fee and the rise in interest rate are the panalties if your payment arrives late any month.
Debt Consolidation
Balance transfer offers on credit cards can become predatory like *that*, so be careful!
I believe there are severe penalties for a late payment on a balance transfer. The fee and the rise in interest rate are the panalties if your payment arrives late any month. Not sure about this. read the fine print.
Thanks guys that your comments were very helpfull.
Is a matter of fact my mastercard offers 3.99% for balance transfers, so I guess that is a good idea. I never had to do anything like that before so the question was an unfamiliar one to me.
Thanks again!
Debt “consolidation” refers to replacing existing, high rate debt with new, lower rate debt, usually secured by an asset such as your house. If you can’t get the new loan, you can’t “consolidate.” The idea is that if you are going under by paying 20% on your credit card, you can refinance that by borrowing against your house at 6%, lowering your payments. If your friend has nothing to borrow against, you probably can’t consolidate.
Not clear what your friend is consolidating the debt into.
I generally think it’s a bad idea if he’s consolidating into a Home Equity Line of Credit (HELOC) or some other mortgage related product. That will just put the home at risk in case something unanticipated does happen. Granted that the HELOC rates can be low. My HELOC just dropped to 2.49%. It’s only worth it if he’s is very comfortable with his income and job prospects and will be disciplined enough to pay of the HELOC as quickly as possible.
Another thing if he’s considering consolidating into another credit card with a balance transfer. I’ll use the fees that BofA normally charges. Modify for your particular offer. Typically there is a balance transfer fee. Generally, the offer is a low interest rate (0%) for a short period of time (6 months) for a balance transfer fee of 3% or till paid off for a higher fee of 6%. You just want to compare how much you pay in interest and fees if you take the offer vs not taking the offer.
In your friends case, it’s probably worth it if it will take some time to pay off the balance. I particularly like the 0% till paid off if it will take much more than 6 months to pay off.
his first step (if he hasn’t done so already) should be to call his banks and ask for a lower interest rate. i just got mine dropped 5% by simply asking.