Starting With Nothing

In today’s world of ’spending on credit’, many people can find themselves at a point where they have so much debt and such large interest repayments, that they can’t even imagine a way out. With credit card interest rates the way they are, its very easy to be paying hundreds of dollars a month on interest alone!

Now some of you may have heard of credit card balance transfers as a way to help with this, or in particular the offers that come with these transfers. A balance transfer is the mechanism by which you can move the amount owing on one credit card to another. The offers that come with these are generally such things as a very low interest rate on the balanced moved, for a period of time (usually 6 or 12 months). As such, if you have a very large balance on your credit card you can move this from a large interest rate on one card (for example 25%) to a low interest rate on another, something on the order of 5%, or even 0% on some offers!

Now these offers are really a great idea for someone who is trying to reduce the amount of debt that they have, as while paying off the same amount each month more of it is going to the actual debt than was before (because less interest has to be payed!). However, you must be careful when doing this as there are some very common pitfalls which must be watched out for!

(See these after the jump)

• Check out the terms of the offer carefully.

Make sure you look at any balance transfer offer carefully, especially things that will apply only after the initial 6 or 12 month period. The main culprit here is the interest rate itself, make sure you look at what it will be after the offer period expires. You don’t want to be on 0% for 6 months then back on a higher interest rate than you were on initially!

• Cut up that previous card and close the account when you can!

This is by far the biggest problem with these offers. If you are someone who can not be disciplined with yourself then don’t be fooled into just getting more credit! If you move $5000 onto a credit card with a low interest rate but then spend the $5000 on the old one again, your actually going backwards! Move your debt to the lowest interest rate possible by all means possible, but don’t increase your debt potential while you at it .

• Go for the lowest limit you can.

This applies in general when applying for a new credit card, but especially here. If you are going to cut up your previous card, then this is a great opportunity to actually reduce the amount of debt you can generate. Don’t leave that little bit extra at the top for a just in case if you know that your really going to go and spend it on something you don’t need. If you can move your debt to a lower interest card while also reducing your credit limit on the card then you’re definitely heading in the right direction!

So if you have a credit card debt that just isn’t going away as fast as you would like, be sure to evaluate any offers you see. They may be a perfect way to speed up the process just a little bit (and every little bit helps). But as with all money related decisions, make sure you evaluate what you would like to do carefully and make sure it’s helping you to get where you want to be in the future!