I recently received an email from Citibank with the headline:
New Year’s Resolution: Pay Off Holiday Bills
The email went on to describe how transferring your current credit card balance to Citibank would help you save money because of their low “promotional” interest rate of … wait, a minute … I can’t seem to find the rate … it’s got to be here somewhere. Nope, no mention of what the rate is and no, I’m not clicking their link. I know that some people love their credit cards and have a unique amount of self control when it comes to using them. Others, like me, think they’re out to get me and they are the enemy!
How does someone begin to think that moving their debt from one lender to another is keeping a New Year’s Resolution? Further, how does it help you in any way whatsoever if you go back and charge up your old credit cards? Now you have twice the debt and by the time you figure out what went wrong, that “promotional” interest rate will end. Maybe it should be called an “emotional” interest rate because of the way credit card companies entice you into thinking their way. Remember, credit card companies are out for one thing: your money. They are not here to help you achieve a goal. They are not here to help you live a better life. They exist to generate profits for themselves by taking money out of your wallet and putting it in theirs.
I believe that for most people and most circumstances, debt consolidation is a bad idea. Here is a comment I wrote on another article: a debt consolidation loan company or a new credit card company is only interested in one thing: maximizing their return. They do this by stretching out 4 or 5 years worth of debt to 10-20 years (or more). They show a smaller interest rate but a much longer term. They really don’t care if you close all your other credit accounts or if you run them right back up to the maximum credit limit.
Yes, it would be easier to administer just one loan, but that almost never happens. One loan soon becomes two, then three, four, five…as the old credit cards are -recharged.
From the psychological side, I think there’s a lot to be said for seeing small successes along the way, even if there is more to keep up with. When a person can write “PAID OFF” on their $75 doctor’s bill after one month, then write “PAID OFF” on their $292 car repair bill two months later, then write “PAID OFF” on their $475 furniture store bill, well, you get the idea. They get juiced! I know I did. There isn’t much to compare with seeing progress!
There are times that consolidation could be a good idea, but in my opinion, those times are few and far between.
If you’re one of the few people able to control your spending and use credit arbitrage correctly, my hat’s off to you. But for the rest of us, don’t be offended if we just watch from the debt free sidelines!
[tags]new years resolutions,debt,consolidation,money,finance[/tags]