Hayateno

Written by Admin on September 22nd, 2008

How To Make Credit Card Balance Transfers The Right Way

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Everyone who has ever been in debt knows that feeling of desperation that comes creeping in, as one suffocates under a mound of obligations that they cannot pay. Colors start to seem dull. Food tastes like cardboard in the mouth. Life loses its savor. One’s need to pay off one’s debt can curtain you off from the world of the living. An indebted person will often do anything to get rid of the grim and dark weight of financial obligation that sets him or her of from his or her fellows. That “anything” usually involves accepting new loans, hoping for better terms that will–hopefully–allow the debt to be eventually paid off.

A loan can certainly aid you in recovering from debt. Yet, if you don’t choose the right loan, you can also become enmeshed in additional debts. If you are borrowing money to pay off money, it is crucial to choose the proper terms for your loan.

When you’re considering taking on a loan, make sure, first of all, to read the fine print. Remember that most lenders, unless they are charitable organizations, seek profit. They will present consumers with what they want to see in bold print, and use smaller print to obscure the details of how their loans could potentially cause consumers to come to harm

Credit card companies often offer customers the option to transfer the balance of existing debts onto new credit cards, in what is known as a “balance transfer.” This is a popular type of loan, because credit card companies often promise low interest rates for balance transfers. These rates can be considerably lower than the interest on your original debt, which can make the balance transfer a good option.

Just be careful not to use the credit card to which you’ve transferred your debt balance to fund any new purchases. Why? Credit cards tend to have a much higher interest rate on new purchases than on transferred balance–and when you make your credit card payments, you’ll automatically be paying off the lower-interest rate portion of the debt first.

Suppose you’ve transferred $1,000 worth of debt to a new credit card, which you’ll have to pay off at a compound interest rate of 2%. This is a good deal, if the original interest rate on your debt had been higher than 2%, which is quite likely. However, suppose you then buy a new TV using your credit card, adding $800 to your debt. Your credit card company will add a much higher interest rate to that $800 debt, which will count as a new purchase–for example, 15% or 17%. Then, when you make your credit card payments, they will automatically go towards the lower-interest rate portion of your debt–that initial $1,000 balance transfer. Meanwhile, that $800 debt will sit, accruing 15% or 17% interest every month, and, in the long run, you won’t be saving any money.

Instead, apply for a credit card that promises low rates on balance transfers, and use that card exclusively for debt consolidation. After you’ve paid off, say $1500 worth of debt, the credit card company might send you even more offers of lower rates, hoping to retain you as a customer.