If you are burdened with high-interest credit card debts, you can benefit greatly from using balance transfer as your way out of it. This simply means you will consolidate your debt using a zero interest credit card account. This arrangement will help restructure your payment plan and allow you to pay down the principal debt without any additional interest being added to it. At least, this is true while the zero interest is in effect.
In using balance transfer as a debt solution, your main concern is the promo period of the zero interest. You want to make sure that you pay a significant amount of your debt during that time frame to maximize the savings that this debt relief program can give you.
How transferring credit card balances is effective as a debt solution
Balance transfer is an effective solution to your credit card debts mainly because it deals with the high interest rates on your balance. Some people have no problems paying down their dues but they are being dragged down by the interest rate of their existing card accounts. It keeps them from really putting a huge dent on the principal debt.
By using the balance transfer method, you will benefit from the following:
Allows you to eliminate your high-interest credit cards. While this only temporary, the 6 to 18-month window will give you enough time to pay your debts without worrying about the high interest that it used to have. Balance transfer cards offer the zero interest over a limited time and this will help you reduce your debts significantly.
Simplifies your monthly payments. Just like in the other debt consolidation programs, you are allowed to transfer your multiple credit card balances into the new card account so you only make one payment every month. That should make payment monitoring easier to accomplish and the chances of you forgetting your due date will be less. Depending on the credit card that you will get, it is also possible to transfer the balance of your other installment debts like furniture, car and like purchases.
Saves you money from interest. Since you will be adopting a zero interest arrangement during the promo period, you will save on the interest during that time. This is a great way for you to use the freed money to increase your monthly debt payments. Or you can use that money to grow your savings for your emergency fund.
Improves your credit score as you pay your dues. One of the common clauses in balance transfer is you are not allowed to miss a payment lest the teaser rate promo will end abruptly. This will help motivate you to stick to your due dates and thus improve your credit score. As you pay your debts on time, you get to positively affect 65% of your credit score – payment history and the debt amount.
Teaches you a lesson by making you pay for the whole balance of your debts. Since there is no debt reduction on this debt relief program, you will feel the full effect of paying down your debt. While balance transfer will make your payments easier, it will still make you pay what you owe.
Steps to follow in shifting your credit card balance
Before you really opt for a balance transfer, make sure that you understand the process first. All the benefits mentioned above can be enjoyed by consumers who follow the rules and know how to maximize this debt relief option.
To help you maximize the benefits of a balance transfer, here is the process that you have to follow.
Identify the debts that you have to transfer. As mentioned you can transfer more than your credit card debts but you have to take note of those that charge prepayment penalties.
Search for a balance transfer card. Some companies offer zero interest cards through the mail. If you get one, you can look it over to see if it can be an account that you can use. Take note of the interest rate offer (aim for zero interest), the promo period and the terms of the promo. If you find that it is lacking, you can search and compare balance transfer cards through online sites like CompareCards.com or CreditCards.com.
Call your old creditors. Inform them that you intend to transfer your balance to a new card account. In most cases, they will make a counteroffer to keep you from switching to another creditor. Analyze this offer carefully and do not be afraid to haggle with them.
Apply for the balance transfer card. In case your old creditors cannot match the offer of the balance transfer card, you can proceed to apply for the new account.
Wait for the transfer to be completed. The creditor behind the new balance transfer card will take charge of transferring your debt from the old account to their own. As you are waiting for this to be completed, make sure you continue making payments towards your old creditor and that these payments will be credited to your account. When you have confirmation from both parties that the transfer is completed, that is the only time you stop making payments to the old creditor. It is advised that you close off the old credit card accounts to keep yourself from using them.
Create a payment plan for the zero interest promo period. We suggest that you adopt a frugal budget during the promo period of the balance transfer card so that you can maximize your payments. The goal is to pay as much as you can while the zero interest is still in effect.
Pay down the debts and familiarize yourself with the terms of the promo. There are balance transfer cards that do not apply the zero interest on new purchases (it is after all, still a credit card). Know all these details so you can make smart decisions about your purchases.
Here is a video from CompareCards.com that will explain further what a balance transfer is and what it can do for your credit card debts.