Student Credit Card and Credit Education Blog

If you’ve had some extreme sessions of credit card purchases or need plastic in an emergency, you might be in a situation where you’ve got an unwieldy amount of credit card debt across multiple cards. In situations like this, options such as debt consolidation may come into your mind (or mailbox).

These services take all of your debt - or whichever debt you’d like to include - and combine it into one loan. One popular company that offers this is Bank of America.

What this type of service does is it combines all of your credit card debt into one loan. The bank (or whoever your work with) provides you with an “introductory” APR and then a set of monthly payments, over a period of time that you feel comfortable with. If you make these payments, you’ve paid off your card. Sound good? Well, things aren’t as rosy as they look.

First, you need to read the fine print of any debt consolidation service. The aforementioned from Bank of America begins with a discussion of your APR:

“All payment amounts and terms are estimates based on an APR of 8.99%. Your APR may be higher. We will set your APR between 8.99% and 24.99% based on creditworthiness.”

and even further down the page.

“We reserve the right to change your APR, fees or other credit terms at our discretion.”

So, that initial introductory rate can be as high as 24.99%, or it may start low and gradually increase. It’s “at their discretion.” Also, you probably won’t have the same luck lowering your APR as you do with phoning credit card companies.

Another issue with using this service is that if you want to add to your debt, it’ll cost you an additional 3% of the amount you add. Not to mention, it will force them to revise your payment schedule which will give them an additional opportunity to revisit your APR, and possibly increase it. Not good.

All in all, if your credit cards are so overwhelming and your working with APRs above 25%, then debt consolidation may be a good option. Otherwise, create a spreadsheet of each card, what you owe, and what your APRs are. Then, get on the horn, and see if they can help you out. Alternatively, you may wish to look into a credit counseling service, who can contact the credit cards on your behalf to get a payment plan in place, and/or lower your APRs. You might get a ding on your credit report, but that would be better than filing for bankruptcy and totally destroying your credit.