Credit Cards Are Not a Good Option for Debt Consolidation
Should consumers turn to credit card issuers for debt consolidation plans? That is what Bank of America is trying to convince its cardholders in a letter offer with its Zero Balance Credit Card Debt Consolidation plan. This plan offers tells its valued customers that they are qualified to apply for up to $50,000 to pay off credit card debt, they can make no payment for three months, and they have the
chance to consolidate all of their credit card debt into one easy-to-manage account.
"Bank of America is presenting this as the chance the chance to transfer your debt and get rid of the minimum amounts and balances that never seem to go away, but the deal may not be as good as they describe. The letter advertises the lowest rate of 7.99%, which would be a good deal if that is the rate you receive and your current rates are much higher. However, the fine print acknowledges that your rate may be as high as 19.99%, based on your credit worthiness," says Bill Hardekopf, CEO of Lowcards.com. "They also say that the rate is not variable, but they may change your rate at their discretion. One of the reasons for increasing the rate is for additional advances. Not surprising, Bank of America encourages these advances by calling them "renewable" funds. If you pay down your balance, they give you the
opportunity to 'reaccess your account' to increase your loan back to your credit limit line."
Another problem is that while the Bank of America plan encourages the loan for debt consolidation, they will put the amount that is up to $50,000 right into your checking account. Then you can use the money any way you would like. "This large sum in your bank account can add a new temptation to spend on something besides your debt. It is easy to see how this could just get cardholders deeper into debt."
"Another 'benefit' for valued customers is they do not require a payment for 3 months. Of course, finance charges will accrue during this time. Certainly do not take this payment deferral option, it will unnecessarily and significantly increase your balance by the time you start to pay," says Hardekopf.
This offer is a good deal only for those who will qualify for a rate that is much lower than what you are paying. You also have to be absolutely certain that you can make each payment on time and that your goal is to completely pay off your credit card debt. If you have had payment and credit problems in the past and are struggling to make your minimum payments, do not turn to a credit card company for debt consolidation. The offer sounds helpful and generous, but the bottom line is that they are just trying to get all of your debt and the interest payments and fees that go with it to increase their own business.
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chance to consolidate all of their credit card debt into one easy-to-manage account.
"Bank of America is presenting this as the chance the chance to transfer your debt and get rid of the minimum amounts and balances that never seem to go away, but the deal may not be as good as they describe. The letter advertises the lowest rate of 7.99%, which would be a good deal if that is the rate you receive and your current rates are much higher. However, the fine print acknowledges that your rate may be as high as 19.99%, based on your credit worthiness," says Bill Hardekopf, CEO of Lowcards.com. "They also say that the rate is not variable, but they may change your rate at their discretion. One of the reasons for increasing the rate is for additional advances. Not surprising, Bank of America encourages these advances by calling them "renewable" funds. If you pay down your balance, they give you the
opportunity to 'reaccess your account' to increase your loan back to your credit limit line."
Another problem is that while the Bank of America plan encourages the loan for debt consolidation, they will put the amount that is up to $50,000 right into your checking account. Then you can use the money any way you would like. "This large sum in your bank account can add a new temptation to spend on something besides your debt. It is easy to see how this could just get cardholders deeper into debt."
"Another 'benefit' for valued customers is they do not require a payment for 3 months. Of course, finance charges will accrue during this time. Certainly do not take this payment deferral option, it will unnecessarily and significantly increase your balance by the time you start to pay," says Hardekopf.
This offer is a good deal only for those who will qualify for a rate that is much lower than what you are paying. You also have to be absolutely certain that you can make each payment on time and that your goal is to completely pay off your credit card debt. If you have had payment and credit problems in the past and are struggling to make your minimum payments, do not turn to a credit card company for debt consolidation. The offer sounds helpful and generous, but the bottom line is that they are just trying to get all of your debt and the interest payments and fees that go with it to increase their own business.
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Posted by Lynn at
3:27 PM
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