There are a lot of people who choose to perform a credit card balance transfer to help them manage their ever-growing card debt. The challenging part is that people seem to have accepted the fact that credit card use will always lead to debt. This may be the reality for a lot of American consumers but it should not be the only one they accept.
There are people who are able to use multiple credit cards every month without getting into debt. They even assign specific cards for each specific use. Some would have one card for gas and car needs, another one for groceries, and even have another one for travel purchases. However, they never let the lure of making minimum payments get to them.
One of the reasons why you might be looking for credit card balance transfer opportunities is because you only made the minimum payment on your card. This can lead to an increased monthly payment where interest and other fees have taken over. You may not notice it anymore but most of that minimum payment you make every month goes to interest payment only. You are barely making any dents in your principal amount.
Even Mark Cuban once mentioned that credit cards can get in the way of becoming rich as shared by CNBC. This is because credit cards make it so much easier to spend money you do not have but a lot harder to pay, again, with money, you do not have. This cycle can keep going on and on until you realize that you need to make some drastic changes. This is where debt consolidation can come in through a card balance transfer.
Debt consolidation with a balance transfer2
This is one of the many ways consumers choose to manage their debt repayment to make it easier for them to get out of debt. The idea is to transfer most, if not all of your credit card balances into one card. You do not just go pick any card to transfer your balance to – you need to look for the one with the lowest interest rate.
There are even times where you get an offer for a zero percent interest rate on a card. Of course, this is a promotion for lenders and will not be a lifetime offer. This usually averages 12 months for most offers. This is a great chance to make a credit card balance transfer and save on interest payment. However, there are a few questions you need to answer first before diving into the program. Here are some of them.
Are there any fees involved?
You might think that this is a bit redundant because the card is already offering a 0% interest on the card for a certain number of months. That is a good thing but when it comes to credit card balance transfers, the interest rate is not the only thing you should look into. Yes, it is one of the biggest reasons why you would go through it in the first place but you also need to look at other fees.
In the absence of charging an interest rate, there are other fees that can be tacked into the transfer. This can be a flat dollar rate or even a percentage of the transfer amount which is a more common practice. It might not seem much but this would depend on the amount you are transferring over to the new card. Obviously, the bigger the total amount, the bigger the fee would be.
If you are transferring $100 with a 3% fee, your new balance would be $103. Not too bad considering you get to consolidate the amount and lower the chances of forgetting to pay some of them. However, when you are looking at $10,000 total balance, you will incur $300 in transfer fees. You obviously need to take a look at these fees and assess if it is worth taking.
Are you going to pay everything off before the introductory period ends?
One of the biggest questions you need to ask yourself when looking to make a credit card balance transfer is if you can pay everything off before the introductory offer begins. This is one of the biggest considerations you seriously need to think about. Are you going to have the ability to pay off your whole balance before the offer begins?
The biggest reason for this is because once you go over your introductory period with a carry-over balance, you start to be assessed with interest rate. The 0% rate ends and your balance is now subject to prevailing interest rate by the lender. The problem is that you might be back to where you started if you do not pay off your whole balance. You might see yourself dealing with fees and other charges again on your card.
Am I disciplined enough not to rack up new debt with my old credit card?
One of the reasons why credit card balance transfer works is that you get to clear up your old cards of debt obligations and transfer them to a low-interest card. This saves you money by making smaller interest payments. However, you need to still need to have financial discipline so you do not rack up new debt with your old card.
This is one of the pitfalls a lot of consumers fall into once they start with the program. They fall into a false sense of security and start adding new purchases in their old cards. Once this happens, they slowly increase their monthly payments again. If you are doing this, you will soon find yourself back in the situation where you had to consolidate your card debt. Only this time around, you are just adding to your payments making it harder to get out of debt.
Do I have another financial alternative?
As good as credit card balance transfer is, there are other alternatives you can consider when you are trying to manage card debt. There are other debt relief payment options available to you which could work better depending on your current financial situation. You always need to consider multiple factors before making a decision.
It is possible that taking out a loan can come out less expensive for you in the long run. This works best if you have a stellar credit score and you get the chance to get the loan at a very low rate. Another option is taking out a home equity loan which can give you a really low-interest rate over a long period of time. However, you need to consider the possibility of losing your house if you fail to pay back that loan.
How do I prevent the same thing from happening again?
This is one of the hardest questions to answer when you are trying to consolidate your credit card debts. How do you ensure that you do not go back to square one and not incur more debt as you go along? The best way to prevent it from happening again is to learn from your mistakes. This means you need to go down to the root of the problem.
It is not enough that you know you get into credit card debt often. You need to ask yourself why you get into debt in the first place. Are you an impulsive buyer? Are you relying on credit to help you with emergency expenses? Once you identify why you are in debt, the better you can address the root cause and start avoiding debt altogether.
Credit card balance transfer is one of the best ways to help you manage your credit card obligations. However, you need to make sure that you treat the main cause of your problems so you do not go back to where you started after you have consolidated your credit card debt.