Consolidating credit card debt without a loan

When people are getting control of their credit card debts it is often suggested that they get a consolidation loan.  While consolidation loans do have a role to play in controlling credit card debt there may be a danger in getting them too early.

Consolidation loans actually increase the borrowing capacity of most credit card users by getting the loan in one place and extending the repayment term.  This can be increased even more if the consolidation loan has been secured against a property.  This means that a credit card borrower who has not started paying down their debts systematically can find that the consolidation loan means that they are in more debt than they were before.

There is an alternative to a consolidation loan, and that is to consolidate loans on to the lower interest credit cards that the borrower holds.  There are a number of steps in this

The first step is to phone up each card provider and to ask for a cut in the interest rate.  If the borrower is regarded as a good credit card holder then this is likely to be granted, particularly if they talk to a customer retention representative.  In this way there are likely to be interest rate cuts any way.

It is also a good idea to ask what the balance transfer rate is for existing card holders and to ask if this can improve. When there is a good balance transfer rate, the card holder should ask to increase the credit limits on cards with the good credit transfer rates.

Once the card holder has a good idea of their balance, interest rate and balance transfer rate on each card it is time to decide where the best interest rates are and to transfer the credit card balances from the highest interest rates to the lowest interest rates.

This process affects a borrower’s credit rating.  Although there are no new cards to apply for immediately and the ratio of credit offered to credit taken is the same, there will be a couple of cards that now have no credit outstanding.

It may be the case that it then becomes possible to realistically compare the current credit card offers with the interest that is actually on offer.

The next step is to repay the most expensive debts before the less expensive debts.  This strategy is known as snowballing.  The practice of paying off the most expensive debts means that the money goes in paying off less interest and so can be devoted to paying off the balance.