Financial Tips | Debt Management

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How to Lower Interest with Credit Card Consolidation

Depending on what kind of credit cards you have, you may be paying an extraordinarily high interest rate. For example, credit cards offered on college campuses tend to have higher interest rates then credit cards offered at banks. Additionally, "student" credit cards tend to have higher interest rates than traditional credit cards. This is generally true because college students and young adults are just starting to establish their creditworthiness. As such, to offset the risk of giving credit to somebody without an established credit history, credit card companies charge higher interest rates and annual fees for these cards. The interesting thing is that you probably still use some of those cards today even though they are inferior to other credit products available to you.

It is important that you do not close these high interest credit card accounts (there is an exception discussed below). Closing a credit account will negatively affect your credit score. As such, in order to save money and your credit score, you should consolidate your debt onto one low interest credit card.
Consolidating your credit card debt onto one low interest credit card can save you money in more ways than one.

First on all, your old credit cards or your high interest cards carry a far higher interest rate than do other, easy to obtain credit cards. Additionally, many credit cards offer zero percent interest for up to one year on balance transfers. Therefore, if you transferred your debt from your high interest card onto a zero percent interest card, you would save a lot of money in interest payments, and you would pay down your debt faster.

Annual fees usually accompany high interest credit cards as another mechanism to offset the risk of the credit card companies. Annual fees are pointless. The only time a credit card should have an annual fee is if it is a charge card (if it is a charge card, you pay no interest and therefore, an annual fee is the only way for the company to make money). As such, if your high interest credit card has an annual fee, you should call that credit card company and see if you can get that annual fee eliminated.

If the credit card company is unwilling to accommodate you, transfer your balance on that card to a zero interest card and close the account. By closing the account, your credit score will take a small hit. However, this small hit is easily offset by maintaining a good history with the new zero percent interest card. Additionally, you will no longer have the expense of an annual fee.

Save yourself the expense of high interest and annual fees by consolidating your debt onto a low interest or no interest credit card.