Are you knee-deep in debt? If yes, then you must look for certain ways that will help you repay your debts quite soon. Try to opt for a balance transfer method to clear all your obligations soon. If you have decided to opt for this strategy to repay your debts, then at first you have to search for a lender who will allow you to take out a balance transfer card at a low rate of interest. Now, you have to transfer all your obligations (unsecured) into your new balance transfer card. Now, you’ll be able to repay your debts at a low rate of interest.
What is the Balance transfer method?
In the balance transfer method, you can transfer all the balances that you have in your high-interest credit cards to the one with the lowest interest rate. Now you can just make one payment, on the card to which you have transferred all the balances to pay back all your debts. Along with this, you get to pay the interest rate that is on the lowest credit card for all your debts. You can also use a balance transfer card for this purpose.
A balance transfer card can be gotten from credit card companies at an extremely low rate of interest such as 1% or 2%. You can transfer all the balances of your credit cards to this balance transfer card and pay them back at a low rate of interest. However, you should remember that this low-interest rate is an introductory offer that lasts for a certain period of time. If you are unable to pay your debts within that time, the rate of interest will rise up quite higher.
Balance transfer and its advantages
- 1. Lowers the interest rate – Balance transfers like any other credit card consolidation method lowers the interest rate on your consolidated debt.
2. Lower your monthly payment – When you transfer balances from all high-interest rate credit cards to a low-interest rate credit card, the interest rate lowers. As a result, your monthly payment amount gets lower too.
However, there are some disadvantages or rather cons involved with balance transfer too. If you close down other credit card accounts at the same time after a balance transfer, the available credit limit gets lower at once. The credit utilization ratio becomes high in comparison to the credit limit. So, it is better to avoid closing down all of the accounts at the same time.
Thus it is very important that you gather enough money through expenditure minimization so that you can pay your debt back fast after using a balance transfer card. This will ensure you are out of debt, once and for all.
Mistakes to be avoided while transferring a balance
Before you opt for this strategy, you must be aware of certain mistakes that people often make.
Not going through the fine print
When you’ll take a balance transfer card, you must check the terms and conditions of the card thoroughly. This will help you choose the type of balance transfer card that will suit your needs. There are certain balance transfer cards that have strict terms and conditions. For example, if you have taken out a card with an initial interest rate of 3%, it can get converted to 25% after 3 months. Hence, this will hinder the benefits of the transfer.
Use your balance transfer card for shopping
When you take a balance transfer card, you must not forget the fact that you’re taking out a new card at a low rate of interest to repay your debts soon. You should not make the mistake of using a new balance transfer card to purchase items. This is because the low-interest rate on the card will be charged on your transferred balance, not on your new purchases. You’ll be charged a comparatively high rate of interest on your new expenses.
Before you transfer all your debt balance to your balance transfer card, you must check the fees that the lender will charge you for transferring the balance. Usually, they charge a small percentage of your transferred balance as fees.
Lastly, after transferring your balances you need to adopt ways to save money and reduce your expenses. This can be done in many ways but the best thing would be to reduce your everyday expenses so that you can save a little money every day.
Walking for distances that can be walked instead of taking any mode of transportation, decreasing your utility bills by talking less on the telephone and using electrical appliances judiciously, cooking your meals at home instead of buying food, and so on can decrease the expenses you incur quite a lot. Thus you can pay down your credit card in a more convenient manner.