Anyone who has read any newspaper articles on ‘Credit card debt’ would already know what debt consolodation is. However, just for the benefit of others, debt consolodation, in simple terms, is the process of consolidating debt which you hold on various high APR credit cards onto just one low APR credit card. Thus, the main benefit of debt consolodation is realised in terms of APR reduction (and hence reduction in debt growth rate). This is touted as the most important benefit (and sometimes the sole benefit) from debt consolodation. However, debt consolodation comes with few more benefits as well. Some of these debt consolodation benefits are widely publicised by the suppliers and some not so much:
1. Initial APR: As mentioned above, lower APR is the biggest benefit from debt consolodation. Since debt consolodation is used by suppliers as a tool to attract consumers, they generally offer a 0% APR for a initial period of 6-9 months of you joining their debt consolodation programme i.e. first few months after you get the new credit card.
2. Standard APR: Lower standard APR (i.e. the long term APR) is the other important benefit from debt consolodation. Though not all suppliers offer a lower standard APR with debt consolodation some do design debt consolodation programmes with good standard APR. These debt consolodation programmes offer a trade-off between initial and standard APR rates.
3. 0% on purchases: This is another common benefit from debt consolodation. The 0% interest (or some lower percentage) on purchases is offered as an incentive for debt consolodation. This debt consolodation benefit is again applicable only for a short initial period.
4. Easy management: This debt consolodation benefit is not as discussed as others. However, one benefit of debt consolodation (from multiple to single credit card) is the fact that you need to track and manage a lesser number of credit cards.
5. Other benefits: The debt consolodation exercise might bring you some more benefits in terms of rebates, discounts and reward points (especially if you move to a co-branded card as part of debt consolodation)
