Many New Jersey residents struggling with credit card debt consider consolidating their revolving balances to lower their monthly payments and simplify their lives, but this may not always be a prudent strategy. Consumers with high credit scores may be able to pay off their debt more quickly after obtaining a low fixed rate, but doing so could temporarily damage their credit rating in certain situations.
Credit ratings are based on both the amount of debt outstanding and the amount of credit available. Borrowers who transfer their balances to a new credit card with a lower rate will owe the same amount of money, but they will have less credit available. Some consumers avoid this credit hit by keeping their old credit cards open after the balances have been transferred to the new account, but this strategy often leads to even more debt.
Those with poor credit scores will find it difficult to qualify for a rate low enough to make consolidation worthwhile, but the additional inquiries that these applications will add to their credit reports may make their situations even worse. For many, credit card debt consolidation is like many other seemingly attractive options offered by financial institutions. It appears to provide real benefits, but these benefits are rarely available to those who need them the most.
Many people find it almost impossible to escape the negative cycle of credit card debt. Consolidation options may promise lower rates and monthly outlays, but credit card balances can take decades to clear if only minimum payments are made. An attorney with experience in this area could explain to those with unmanageable bills how filing a Chapter 7 or Chapter 13 bankruptcy may provide debt relief as well as at least a temporary halt to collection activities.