Beware Hidden Fees When You Consolidate Credit Card
Debt
High interest rates can be a massive drain on your finances. If
you are stuck with loans or credit cards at high rates, it can
seem as though practically every cent goes to pay the interest
and that the principal balance never seems to shrink. That
means you may think it might be a wise move to consolidate
credit card debt and reduce your annual interest rates to a
figure that is more manageable. On the surface, it may seem
prudent to transfer a credit card with a annual percentage rate
of 16 percent to another card carrying a lower rate, such as 13
percent. But before you make the balance transfer, be sure you
investigate the fine print of your contract with the lower-rate
card, as you may find that there are "hidden" fees that could
come back to bite you when you actually do consolidate credit
card debt.
So what should you look out for?
Some credit card companies charge a "balance transfer fee" that
you will have to pay when moving the balance from your
higher-rate card to the new credit card. In many cases this fee
is a flat rate, one time charge of $35 or $45. However, some
consumers report that they've been shocked to learn that the
balance transfer fee is actually a percentage of the amount
transferred, some as high as four or five percent. On a $2,000
balance transfer, a five percent transfer fee will set you back
$100. And don't forget when you consolidate credit
card debt, these balance transfer fees are added to the
new outstanding balance on the lower-rate card. That means
if you don't make a payment that covers the transfer fee
immediately, you'll be paying interest on top of the fee
itself.
In addition, check other "hidden" fees when you consolidate
credit card debt onto a lower-rate card. For instance, if you
prefer to make your payments via telephone, some card companies
charge a telephone payment fee. You may be shocked to find that
your old card didn't require a phone payment fee, while your
new card does require a fee, sometimes as high as $10.00 per
transaction. That means you'll have to adjust your preferred
payment method to avoid getting stung by such a charge. Your
credit card company should inform you of any convenience or
payment fees that will be required before you actually complete
the payment. If they don't, then make sure you ask.
While we often refer to these fees as hidden, that's only
because these fees may not be top of mind for the consumer when
making a decision to consolidate credit card debt. You should
know that the credit card companies are required to disclose
fees to you before you avail yourself of their offers, so
carefully consider the details and fine print before you
act.
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