The other day I received an offer to consolidate credit card debt. The “package” was for $50,000 at 7.99% APR or so I thought! I do not need to consolidate any debt; especially on credit cards… any charges made get paid off each month. Normally, offers this go right into the trashcan, but this time for whatever reason I decided to read the complete offer.

Most people I talk and counsel, never take the time to read the fine print on debt or credit card offers. They head straight to the “sign me up” part to fix their money problem.

Let’s look at the details shall we!

• No Annual Fee
• No application fee
• No collateral required
• No payment for 3 months*
• One predictable monthly payment

The first 3 items come to no big deal. Why? First of all the company already did their work by basically “pre-qualifying” the applicant (me) limiting their credit risk or they would require some type of collateral. No annual fee or application fee shows how generous the company is! If the consolidation loan offer is accepted they will make plenty over time on interest.

No Payment for Three Months

Here’s where reading an offer becomes a requirement. Although NO payments for 90 days – interest on the amount would accrue over the 3 months. Why charge an annual fee or application fee when 90 days covers both.

One Predictable Monthly Payment

This may appeal to some consumers by giving them an opportunity to know up front the amount owed each month on their consolidated debt at what looks like a reasonable APR – 7.99%. However, the details of this financial contract give the company the reserved right to change the APR at their discretion. So much for a predictable payment amount!

Then the kicker…

“if you fail to pay the minimum monthly payment by its Payment Due Date on any two occasions within 12 consecutive months, we may increase your APR up to a Default APR of 27.99%.”

In the beginning what looks like a reasonable offer – just got ugly.

Let’s assume you borrowed the $50,000, 3 months later you lost your job and made payments but late. One day you open the mail finding the interest rate skyrockets to 27.99% APR.

Paying $750 month at 7.99% would take 89 months or 7 years, and 5 months to pay the consolidation loan off. When the rate goes to 27.99% the monthly payment would move to $1340 per month to pay the debt off in the same 89 months.

Over the 89 months $16,316 will be paid at 7.99%. At 27.99% the interest jumps to $68,724 over the life of the debt repayment.

Moral of the story!

Read the fine print, run the numbers and understand completely your financial position before making any financial moves. One stupid signature could place you in deeper debt!