Balance Transfers Carry Sensitive Timeline for Debt Relief – Guest Post
If you have been considering an offer from a credit card company that promotes low interest rates on balance transfers, there are two things you need to understand.
First – Yes a balance transfer can work well for you as a means of eliminating debt effectively.
Second –You should have a plan in place before signing up for the offer.
How Can Balance Transfers Work Effectively?
A balance transfer is an offer from a credit card company that provides a promotional interest rate that is on average much lower than traditional interest rates, typically 0%. A balance transfer offer opens the door for you to transfer existing balances from other credit cards to a new card with a significantly lower rate. Ideally, you can consolidate all of your high rate credit card balances to a single account, provided you have a large enough credit line to accommodate the debt you want to transfer.
The upside of using a balance transfer strategy is that you can eliminate other credit card balances and only have one monthly payment to focus on. With a 0% balance transfer, you can make more headway on the combined balances. For instance, by taking all the minimum card payments you have been paying and allocating them together towards one balance with lower finance charges, you can more effectively reduce your total debt and do it in a faster period of time, since your entire payment will go towards reducing your principal, rather than being split between new interest charges and your outstanding balances.
Why Proper Planning is Important
While transferring balances to a credit card with a 0% rate will provide interest savings no matter what, proper planning is the key to getting the most out of a balance transfer. The big catch with balance transfer deals is that their ultra low promotional rates only last for a limited time. After all, a promotional rate is just that – a promotion to lure customers in. Once a low promotional rate expires, typically after twelve months, the interest rate will increase to average rates similar to what you were paying before you consolidated your balances.
Ideally, you will want to create a budget that will allow you to repay your outstanding debt in full before the 0% introductory rate expires. Thus, if you owe $4,800, you will want to allocate $400 a month towards repaying your debt so you can eliminate if before the standard rates kick in.
If you can’t reasonably set aside enough money to repay your credit card debt in full before the 0% rate ends, focus on paying as much as you can. Don’t use a 0% balance transfer to kick the can down the road. Instead, create a plan that will allow you to reduce your outstanding balances as much as possible while you are under the umbrella of a 0% rate.
For example, if you can only afford to reduce your credit card debt by 50% during a promotional period, you may be able to secure a second balance transfer from a different company and finish paying off your credit card debt in two years without paying interest. However, it is best to assume that you won’t be able to do one balance transfer after another to avoid becoming complacent and maintain your focus on getting out of credit card debt.
Ultimately, balance transfers can go a long way in helping consumers get out of credit card debt. However, simply doing a balance transfer is not the solution to credit card problems. Yes, getting a 0% rate will save you money on interest. But if you don’t develop a serious plan to repay your credit cards, doing balance transfers will only push your credit card problems further into the future.
Guest post from Debbie Dragon, who contributes articles about saving money with balance transfer offers at Smart Balance Transfers.