Of course, the title of this post is an exaggeration on both sides. Credit cards are neither a friend nor a foe.  They are a merely a tool, and how you use them (or abuse them) is what will determine whether they help you or hinder you in your progress to becoming debt free.

A credit card can be used for the sake of convenience, for online shopping and the dozen other uses for which it was designed, none of which are necessarily a bad thing.  For others, a credit card can become a means of increasing revolving debt to unmanageable levels, requiring the borrower to pay obscene amounts of unnecessary interest every month.


Many who let credit card debt get out of control see debt consolidation as the way out. They are often presented with a stack of offers to reduce their credit card debt by consolidating all their debt onto one card.

But those offers, though they frequently tout ‘lower interest rates’ should be viewed with a skeptical eye. Those lower interest rates are usually only available to a select few with very good credit ratings. That doesn’t apply to the typical person who is struggling to overcome a history of excessive debt and find a way out.

But, they can offer a way to solve the problem over the long term. You may, in fact, be able to qualify - the only way to be sure is to apply. But even if you’re accepted, there are several key items to keep in mind when considering this solution.  If your credit is in very bad shape and you suspect it will be unlikely that you’ll be approved, you may want to not even apply as excessive inquiries into your credit report via loan applications can actually harm your credit score.

Very rarely will such credit card offers lower the actual amount of principal outstanding.  As a result, you have exactly the same amount of debt on the day you acquire the new card and, over the long term, you will actually sometimes pay more.


A lower interest rate can obviously be a benefit, but lowering the rate doesn’t always mean lowering the total amount you’ll have to pay to relieve the debt.  If you pay 8% on a debt of $10,000 for, say, five years you will pay more than paying 10% on $10,000 for two years.

The reason for this is the compounding effect of interest. The total amount of interest paid in the first case is $2165.60. The net interest rate overall is 21.656% when calculated as the percentage paid beyond the principal. In the second case, you pay only $1074.80, with a net interest rate of 10.748%.

Remember the 8% vs 10% are the APR in each scenario. APR means the annual percentage rate, this is the rate for a one year period, not the total percentage of interest.

Of course, the upside is that in the case of 8% over five years, you pay only $202.76 per month, in the second case you pay $461.45 per month. Many will find the former payment easier to manage than the latter. And, you may be able to find some middle ground. Calculators available online will help you run through the different scenarios, in order to guide you to choosing the one that’s best for you.  Assuming you have no prepayment penalty (unlikely on a credit card), if you have some discipline you can get the 8% card and just pay the extra money towards the principle every month.  Minimum payments are not your friend, regardless of the interest rate on your card, you’ll need to pay more than the minimum each month to make significant progress toward relieving your debts. 

If discipline is not your specialty, considering a consolidation loan with fixed payments over a pre-determined time table may be a better way to resolve your debt.  Several online lenders offer fairly competitive rates these days and, as long as you make your payments when due and stop taking on additional debt, you will have an exact date that you will be debt free.