Credit Card Balance Transfers as a Debt Management Option
If we are to believe what we read, here in the UK, and possibly other countries as well, we are sitting on a “debt time bomb”, made up of credit card and other unsecured accounts.
The fact is we as consumers have changed how we make purchases over the years, and buying online has become a huge industry; which means we use credit and debit cards as our computers and mobile phones and tablets, have no way to put cash in them to pay for these purchases.
We are moving towards a “cashless society” and cash is being used less and less. In fact credit and debit card usage overtook cash mid 2018.
Which feeds into the whole debt time bomb, as we are using our credit cards more and more, and unless we are paying off those balances each month, which we are not, we are finding our selves more and more in debt.
So for some, as their credit card balances rise, they are looking for ways to get out of debt, to pay off their credit cards.
One option is balance transfers.
Can I Really Save Money and Get Out of Debt By Transferring Credit Card Balances?
Yes, you can, and we will explain how.
Some credit cards carry a very high rate of interest on the account, 20%, 25% or even as high as 30%.
This means if you carry a balance on your credit card each month you can be paying quite a bit in interest; money that could be going to paying down the principal balance.
The obvious choice if you have and use credit cards is to not carry a balance on the account. Pay the amount charged in full at the end of the month or payment cycle. However, not all of us can do this. So we carry a balance on our credit card(s).
Which means if we pay just the minimum payment each month, or even if we pay more than the minimum, but not the full balance, we are paying interest. Again, money that could be used to pay the account off in full.
However, if your credit card has a 25% interest rate, and you find another credit card with a lower interest rate, 18% or perhaps even lower, and some credit car companies were offering 0% rates for a short period of time, and you transfer the balance, you could save money.
I say/write could save money, as we will see you still need to pay the balance off before the introductory rate expires, or pay more than the minimum monthly payment.
Finding a credit card with a zero 0% interest rate is getting harder and harder, but there are some cards out there with low rates. One thing to also keep in mind is there can be fees associated with transferring balances.
If a card carries a 2% transfer balance fee and you have a balance of £2,000, this can cost you £40 just to transfer the balance. You need to keep this in mind to see if the transfer is worth it.
In most instances, if the interest rate is substantially lower, it is worth the fee.
The next step after you transfer the credit card balance is to pay off the account while you are under a low or zero interest rate period.
It does you no good to transfer a balance on a credit card, only to continue to pay the monthly minimum payment.
If you have a low or zero percent rate, more of your payment is going to pay down the balance, and less to the interest charged.
You also need to stop using the credit card. Using/charging on a credit card while trying to pay it off is like trying to hit a moving target; it is more difficult.
So to recap:
* Stop using a credit card if you are trying to pay the balance off.
* Pay more than the minimum monthly payment.
* Transfer the balance on the account to a lower interest rate.
Sounds easy, and it is, but finding the elusive White Whale of low interest rates or zero interest rates is now becoming more and more difficult.