Credit Cards

People who are in debt (credit card debt) often hear this advice: 'consolidate your credit card debt'. So, what does that 'consolidate your credit card debt' mean? Well, pretty simply, 'consolidate credit card debt' means consolidating the debt on various credit cards into one (or two) credit cards, or into another form of credit, like a bank loan. This consolidation can be done either through a low interest bank loan or by transferring balance to a new credit card (i.e. transferring the amount you owe, on one or more credit card, to a new credit card(s)).

So what should you do when you are looking to consolidate credit cards? Well, the key thing to look for is the APR or the annual percentage rate. Whatever method you adopt to consolidate credit cards, APR will always be the key; in fact, you could say that it is the sole criterion to look for.

So, if you use a bank loan to consolidate credit card debt, the interest rate on the bank loan should be lower than the APR of the credit cards whose debt you are consolidating. Similarly, if you are moving to another credit card, you must make sure that the APR of the new credit card is lesser than the credit cards whose debt you are consolidating.

However, there is a catch that you must be aware of when laying a plan to consolidate credit card debt. The APR rates advertised by most credit card suppliers are the short term APR rates which are meant to lure you to consolidate credit card debt with them. By short term we mean APR rates that will applicable only for an initial period of less than 12 months or some other period after which the APR rates increase.

When you go on to consolidate credit card debt with these credit card suppliers, they will offer you a lower (even 0%) APR for the first 6-12 months; and a much higher APR after that. You should check what this higher APR rate is. Your decision to consolidate credit card debt will be fruitful only if the new APR rate is lower than or equal to the APR on your current credit card. You might check with your current credit card supplier to see if he is able to lower your APR (if that works, it will make things really easy for you).

If you can make use of the equity in your home to secure the bank loan, basically refinancing your home for an amount large enough to cover the old mortgage and your credit card balances, you will get a lower APR because the loan is secured by property. This is the ideal way to consolidate credit card debt at the lowest available interest rate.

I don't mean to frighten you, but if you are contemplating buying a gift credit card, or someone has given you one, it is vital that you read the terms and conditions carefully.

Here is a sample of the sort of thing you are liable to read (from an issuer of gift credit cards who shall remain nameless at this point, lest you all run out and lynch them).

You agree to pay to all applicable fees described below, and you authorize us to deduct these fees from the value stored on your Card without any further notice or demand, even if your Card is inactive, abandoned, or unclaimed. We will not be liable for refusing any transaction on your Card if, because of our deduction of any fee, the value stored on the Card is not enough to pay for that transaction.

* Replacement Fee - $7.50 for each lost, stolen or damaged Card
* Express Delivery Fee - $15 for each replacement Card
* Account Maintenance Fee - $2.50/month, beginning the seventh (7th) calendar month after your Card was issued.
* Check Issuance Fee - $15 or the remaining value if it is less than $15.
* Card Closing Fee - $15 or the remaining value if it is less than $15.
* Calls to Customer Service during any monthly period:
o For automated responses - Free for first 10 calls, $5 for each additional calls.
o For operator-assisted calls - Free for first 2 calls, $5 for each additional call.

Now this is not unusual. A little read of the terms and conditions on any gift credit card will reveal a raft of possible traps for the unwary.

A gift credit card is issued by a regular credit card company, like Visa, Mastercard, or Discover, or perhaps by a store, although strictly speaking that would be a gift store card rather than a gift credit card.

Actually, the name "gift credit card" is a bit of a misnomer, because these cards are not actually credit cards. Gift credit cards are "stored value" cards, otherwise known as "debit cards". When you buy a gift credit card for someone, you are doing the equivalent of opening a bank account in their name and getting them a plastic card they can use to withdraw the cash.

There are all sorts of pitfalls, though.

Some providers won't allow the use of the cards in ATMs, some won't allow them to be used outside the US, some won't allow them to be used for particular purchases, and some won't let you use them if you can't afford to pay a 20% tip on top of the restaurant bill, even if you think the service was lousy and don't intend to tip at all.

Discussion of the problems with gift credit cards is springing up here and there, but there is really no substitute for reading the terms and conditions for yourself.

There are at least ten questions you should ask your gift credit card provider - as well as things to avoid, like calling the call centre! Or leaving a balance on your card for more than a few weeks - that can also be costly.

Credit card debt seems like a financial issue. There is another level, however, to what looks like the purely financial problem of how to handle your credit card debt. That side has to do with the human toll that carrying credit card debt from month to month and year to year can have on a person and on a family. A family's finances are at the core of what make the family work. Credit card debt eats away at that core.

The old joke goes "Money can't buy happiness - but it can rent it." And while that's cute, credit card debt can make the difference between a family that is able to live peacefully within its means and one that is on the verge of disaster.

When you sit down and take seriously the challenge of conquering your credit card debt, you have some battles to fight that are not just about credit card debt, interest rates and minimum payments. The truth is that none of us can face down something as overwhelming as a massive credit card debt if we just don't think we can do it.

A person's self confidence to deal with a large credit card debt is rooted in the idea that he or she can and has had success at facing a challenge before. You believe you can take on a new challenge, such as conquering credit card debt, because you have accomplished difficult tasks before. When it comes to facing tens of thousands of dollars of credit card debt, it's possible you have never before faced such an overwhelming enemy. Credit card debt can cause despair, and make you just want to throw up your hands and give up.

So, when is the appropriate time to panic about your credit card debt? Well, you know the answer to that question is - NEVER! This is not just pie in the sky optimism talking here. There are some very pragmatic reasons that you should stubbornly refuse to panic no matter how bad the credit card debt appears to be.

For one thing, if you are the responsible adult in the house whose job it is to handle the finances of the family, those people you love depend on you to guide your family out of messes, including credit card debt. The last thing they want to see is for you to come unglued because of a few bills. So for the sake of the people you love, keep your head and keep looking for options and answers to your credit card debt problem.

The other reason to not panic about credit card debt is that there is always something you can do. You can get another job, or find another income source to keep paying that credit card debt down. And as long as you can make the payments on your credit card debt in any given month, there is hope the next month you will start to pull ahead. As long as you have your health and there are jobs to be had, you can work and slowly get on top of even the most daunting credit card debt. It might take some hard work, but you can do it.

You may also be able to refinance for debt consolidation purposes, rolling your credti card debt in with your mortgage. This provides instant relief by lowering your monthly interest bill on your credit card debt from credit card rates to mortgage rates - a saving of up to 10% and sometimes more on the APR.

But even if you cannot work, have no home to refinance, and the credit card debt keeps getting higher and higher, there is still no reason to panic. You can renegotiate with lenders to get some control over the credit card debt. You can use a credit consolation service to get your credit card debt payments down, and get on a schedule to pay the credit card debt off over time. At the very end of the spectrum of what you can do, there is bankruptcy. If your total credit card debt exceeds your total annual income, you should seriously consider bankruptcy. Experts believe that a credit card debt of that size cannot realistically be repaid.

As bad as that word sounds, bankruptcy is not the end of your world. Lots of people use bankruptcy to escape unbearable credit card debt, and come out the other side of it fine, ready to take on the world again.

There is no need to panic - no matter how bad your credit card debt problem, you really are not doomed. There is always a way out of the mess you are in with credit card debt. It might take some looking, some creative thinking and some leadership to get on top of your credit card debt. But you can find those resources inside yourself if you stubbornly refuse to panic.

Images: Dan Phiffer, nomad 9491, diaper