When peace of mind hangs in the balance, moving your credit balances, through a balance transfer might be the answer – simple, safe, and swift! Chances are your mailbox is overrun daily with offers of 0% or low interest rates, decreasing your overall debt load.
With average annual interest rate charges of 16%, finance charges can make it difficult to reduce or clear credit debt. Most balance cards provide a grace period for their zero or low interest rates that allow you, the client, to pay down your balance. Once that period ends however, realize that the interest rates rise and the “honeymoon” is over. Making sure to take advantage of the benefit of whatever your clearance time is, often between six months and a year, is crucial. Otherwise, you’ve only procrastinated, pushing off the inevitable, likely resulting in greater charges than you started with.
Also important to note are bank charges, transfer fees, annual or joining fees, and other “fine print” that might be attached to the transfer. Transfer fees may be a percentage of the actual transfer, other times there is a sliding scale, making it important to realize the charges up front. The purpose of the transfer is to help reduce your charges, using monies that might otherwise go to interest fees to pay down the principal of a loan, be sure you aren’t just trading interest charges for other fees.
“Transferring your balance to a card you already have, which might be offering a low or zero interest rate, rather than applying for a new card is a good option,” said Michael Solano, Chief Financial Officer for Pioneer Credit Counseling in Rapid City, South Dakota. “Credit card companies will be making inquiries to your credit and you need to realize the impact signing on for a new card might be.”
Using balance transfers to clear credit is a positive move, making sure you don’t respend on the now freed up credit card, sending yourself in a circle, is an even better move. Put the card away, freeze it in an ice cube, cut it up and “fuggedaboutit” is the way to go. Closing the account may affect your credit score in a negative manner so just don’t use it! Remember that transferring the balance doesn’t make you not accountable, it allows you a “moment” of freedom during which you must take advantage and pay down your debt.
“It’s important to see the overall picture and there are many advantages of setting up balance transfers,” said Mr. Solano whose agency has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997. ”Knowing the exact rates you’ll be paying to begin with, and how those will change over time, is important.”
Having a plan of how much and how long it will take you to pay down your debt, before you make your transfer, will likely make you more successful. Paying down the balance to bring yourself out of “a hole,” and into the light, rather than just freeing up space on a card to make further purchases, is THE reason to move forward.
Note that new purchases to a card, that provided the low or zero balance transfer, are often charged at a higher rate, and payments made go first to the lower rate charges, those transferred. This is important because while you may be paying down one end of the debt, your new charges and higher interest rates may override your payments, getting you nowhere in the hope of reducing your debt. Keeping the card “clean” of new purchases, and just paying down the debt, is a reasonable and practical way to manage the account.
Managing and reducing is the key, not making transferring balances a habit as lenders, both within the credit card industry and those outside, want to see payments, not just movement, when considering loaning monies. In addition, managing payments, in a timely manner, is critical because on many cards, missing a payment, even for just a day, may result in voiding of the low rate of interest and APR’s, bringing you back to square one.
Making your way down the road to reducing debt can be a hop, skip, and a jump. It’s up to you to exercise your way into financial good shape!