Wednesday, October 30, 2013

How to Reduce (or Eliminate) Credit Card Debt With Balance Transfer Offers

Of course, The best way to get out of debt is not to get into it in the first place - in other words, pay off your credit cards fully every month. This is really the only way to be debt-free, enabling you to avoid interest and finance charges. None of the major credit card companies (Visa, MasterCard, American Express, or Discover) penalize you for doing this.The ideal is to live within your means, spending less money than you make. It is a sure way to stay out of credit card debt.The SolutionBut if you are reading this, chances are you’ve already accumulated too much credit card debt. Here are your options:Option #1: One thing you can do if you have outstanding balances on high interest credit cards, is to do a balance transfer onto a lower interest credit card.Of course you first need to have a balance transfer offer from a credit card company, with a card that has a lower interest rate than the one you are trying to pay off. Visa, MasterCard, American Express, and Discover all have a variety of different cards, with different interest rates. By transferring your balance to a card with a lower interest rate, you can save hundreds if not thousands of dollars in interest charges. You can compare these cards online (see resource box at bottom).If you get lots of offers (as you will if your Equifax Score is higher than 690 - rated "good" - and you may even get a few while rated "fair") you will be able to pick and choose among balance transfer offers. Look for ones that keep the low rate until you have paid off the balance transfer completely. In some cases, you may want to accept one that raises the rate after some months, as long as that new rate is lower than the one you have on the card you are trying to pay off.Sometimes the best balance transfer offers come with a new credit card. You will find reviews of some of the best at [] Do remember, however, not to apply for too many at once - sure to lower your credit card score.A Few Things to RememberFor ease in understanding, we will call the high interest card you are paying off Card A, and the one you are transferring balances to, Card B.1. Be careful to continue making payments on Card A. until your payment shows up (you can check most credit card balances on the credit card website, by logging into your own account.)2. Try to time it so your transfer pays that month's payment. Do this by making the balance payment right away when you have just received your statement for Card A. That gives several weeks for the payment to post. Then you will not need to make a regular payment that month and can apply more to some other card.3. Experts vary on their advice about what card to pay off first. I prefer to pay off the highest interest card first, but others say the satisfaction of paying off a card with a smaller balance (because you can pay if off quicker) is important to your motivation to keep paying down that debt. I get my satisfaction in seeing the interest and minimum balances drop drastically as I pay down the very high interest rate card.4. Be careful to leave a few hundred on Card B so its next interest charge will not make you overdrawn. Apply as much as you can to Card A, but not all of it.5. Be aware that almost all cards doing balance transfers with a very low interest rate offer are going to apply any payments you make to those lower transfer balances first. So it is best if you only do a balance transfer to a card that is totally empty. If you have charges on it at its normal interest rate, they will continue to accrue finance charges at the higher rate all the time the lower rates transfers you did later are being paid down.Option #2: You can also transfer your balance from a high interest card to one with a low introductory interest rate - If you are like most of us, you probably get these in the mail all the time. "Limited time offer!" "Pay no interest for 6 months!" "0% till next May!" All of these cards offer an introductory low APR (sometimes 0%) when you get their credit card. But you have to be careful if you use this option. Use it only if you plan to pay off the balance BEFORE the grace period ends. If not, you might end up paying more than you would have originally.Option #3: Another option is to get a credit card debt consolidation loan - it can take a lot of the stress out of trying to juggle credit card accounts. It allows you to consolidate all your credit card debt into one easy payment at a fixed interest rate. This rate is almost always lower than the one the credit card companies will give you. The draw back is that you have to be very careful who you get such a loan from, especially is they promise they will negotiate lower credit card payments, so that you are not paying all you owe. If it is from a credit counseling agency like that, it may harm your credit rating.Before applying for any credit card, you may want to discuss with your financial advisor which credit card's best for your unique financial situation.