||Ask Dr. Don
Consolidating credit card
Dear Dr. Don,
Does it pay to take a cash advance on
one credit card to pay off two smaller ones? The cards all have
the same interest rate.
If they all have the same interest rate, there's no real
need to consolidate these balances. Think about it. If you have
$2,000 outstanding on two credit cards at 16.9 percent, what's the
savings in having the balance on one card at the same interest rate?
Most credit card agreements have higher interest rates
for cash advances and will also charge a fee for the transaction,
too, so it's not going to be a less-expensive approach to paying
down your credit card debt.
People typically look to debt consolidation to reduce
their interest rate or extend the term of the loan. Credit card
debt is open-ended or revolving credit, so shifting balances from
one card to another isn't going to extend the loan term. You've
stated that all of the credit cards are at the same interest rate,
so that's not a reason to move balances.
About the only reason for you to consolidate these
balances is if one credit card calculated the minimum payment as
a lower percentage of the outstanding balance then the other and
you were trying to free up some funds in your monthly budget. You're
trying to pay things off, so you should be paying more than the
A balance transfer to another credit card at a lower
interest rate could help you pay down your balances faster because
more of your monthly payment would be going toward principal instead
of finance charges.
But the credit card companies are getting pretty
sophisticated in putting up barriers so cardholders don't keep moving
on to the next teaser rate, so make sure you understand the credit
terms and balance transfer charges if you decide to take this approach.
Bankrate.com has a feature that can help you decide
if moving balances is the right decision for you.
-- Posted: July 12, 2002