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Debt Handling - Low Interest Credit Cards: Friend Or Foe?

Credit cards aren't really one or the other of these. They are a tool, nothing more - and like any tool, it can be used to your benefit or detriment; the choice is yours.

Credit cards are convenient, letting you shop online and any number of other applications. A credit card is also something which allows you to get way over your head in debt and can cost you exorbitant amounts of money in interest payments.

Debt consolidation is something that a lot of people look to as a solution to their out of control credit card debt. They are deluged with offers from credit card companies and debt consolidation services to put all of their debt onto a single credit card or loan.

These offers of low interest credit cards should be examined carefully. The low interest rates referred to are usually offered only to consumers who have exceptionally good credit - and if you're struggling to get out of debt, you're not likely to be one of them.

A genuinely low interest credit card can however be a viable long term solution to your debt. The only way to find out if you'll actually qualify to receive these low interest rates is to apply for the card. If you are approved, there are a few things you should be aware of before you begin to transfer any debt to the new card.

These credit card offers won't do anything to lower the principal on your debt. You'll still have just as much debt as you did before and if the interest rate is higher on the card than it is on some of your debts, you may actually be paying more over the long run.

A lower interest rate is a good thing, but keep in mind that it doesn't necessarily reduce the total amount of your debt. You're better off with a 10% interest rate which is not compounded than an 8% APR on an credit card.

Interest expressed as an APR means that is compounded annually - for instance, a $10,000 debt with an 8% interest rate means total interest payments of $2,165. However, $10,000 in debt with a 10% interest rate which is not compounded annually means a total interest of $1,074.80!

These percentages are the APR; that is to say, the interest rate for one year and not the total interest.

However, your monthly payments may become significantly lower when you transfer your debt to a low interest credit card, something which can make repaying debts more manageable. There may be a balance to be struck here as well. Use an online calculator to work with the figures involved in different scenarios to find a solution which works for you.