Hey, Mister, Can You Spare A Dime?

Balance transfer credit card offers used to pour into the mail box daily. Since the credit crunch the number arriving has fallen but such offers are still available. If you use a balance transfer to consolidate your credit card debt this can make a lot of sense. However, before you do anything there are some points to consider.

The main benefit of transferring your credit card debt to another company is that it reduces the amount of interest that you will be accumulating on your cards. This means that even if you only pay the same monthly amount to the card company your debt will be reducing far quicker than before.

The important point to remember is that by transferring your credit card balance to another company you are taking a major step in eventually eliminating your credit card debt. A balance transfer should not be considered as a means of putting off a problem until a later date.

Currently there are two types of offer available. The most familiar is the 0% time option. This is when the credit card company offers you a period of interest free credit on the balance transfer. This period can vary from around 4 months to in some cases more than 12 months.

Another offer that is become more common is the fixed for the life of the transfer rate. In this case you transfer your balance at a set interest rate for the full time it takers you to clear the balance. Currently these offers appear to be available at around 6% interest rate. In either form of balance transfer you can expect to have to have added to your new card a 2 ½% to 3% balance transfer fee.

Before selecting a balance transfer offer the first point to consider is how long you expect it to take you to clear the credit card debt. If you can reasonably afford to pay off the balance during the period of 0% interest then this is obviously the route for you to take. The maths for this is very easy because once you have added the balance transfer fee to your outstanding debt and divided the total by the number of
months offered with 0% you know what the minimum monthly payment will be to clear the balance in time.

In these financially uncertain times nobody can be certain what offers will be available down the road. In the past “credit card tarts” as they were called would just jump from one 0% offer to another when the time ran out. You may no longer be able to do this so it is important to study the interest rate that will come in force at the end of the 0% period. It could be even higher than you are paying at the moment thereby nullifying any savings you may have made.

If you do not expect to be able to clear the balance reasonably quickly then the fixed rate for the life of the balance could offer better value. This could drastically reduce the amount of interest you are charged over the period of the debt.

Which ever option you select there is one important act that you need to be aware of. Having transferred you balance you should never use that card to buy or charge anything. Any additional transaction will be charged at a far higher interest rate and there is another hidden sting. Those charges at a high interest rate will remain until all the 0% or low interest balance has been paid off. The rule is simple having made the transfer put the card away and never use it until that balance is cleared. That way you will make a saving.