Debt Views

The best scenario for consumers looking to retire their credit card debt is securing a card with a zero-percentage rate and no balance transfer fees. If you can’t qualify for a card with a zero rate, then get one with the lowest rate possible. If you’re presently paying 18% on your cards and get one at 9%, you’ve lessened your yearly interest by half, making it easier to pay off your debt.

A lower rate means that you are paying less interest and more of your payment will go towards paying the actual debt-the principal. It’s important that once you transfer balances you either stop using the high interest cards or, if you do use them, you pay off the balance each month. One solution to ensure that you don’t run up more card debt is to close the old accounts once you transfer the balances. This will rid you of the high-interest cards and also take away any temptation to use them.

In securing a no or low-interest rate credit card for debt consolidation apply for cards that offer low-interest transfer rates for a year or more. Many issuers will give you a good rate for up to six months and then raise the annual percentage rate. That raise can bump your interest rate up by nine points or more. If that happens in six months and you’ve only paid off half of the debt, it will certainly affect you financially. One option is to then acquire another balance transfer card with a lower rate.

How much debt you have and the credit limit on your new card will also influence how soon you pay off your debt. If you’re carrying $9,000 on your credit cards (the national average for a household) and your balance transfer card has a $6,000 limit, you’ll be left with a total of approximately $3,000 on your high-interest cards. What should you do?

First, transfer the balances from the cards with the highest rates. After doing that, you may want to pay down the new card quickly and only pay the minimum on the high-interest account. That’s the wrong thing to do. Pay as much as you can above the minimum on the card with the higher rate and pay at least the minimum on the low-interest card. You want to retire the debt on the card that’s costing you the most money first, freeing up more cash in the long run.

If you get a card that charges balance transfer fees, you must calculate those into the transfer because they are added to your balance. Thus, if you transfer $3,000 from one card and $3,000 from another and your low-interest account has a $6,000 limit, you’re going to go over the limit on your new card or one of your transfers will be turned down. Neither is a good thing. Both involve penalties charged by the card issuers and can result in higher interest rates. Going over the credit limit on your new card could cause you to lose the low-interest rate!

Fees are usually calculated as a percentage of the transfer with a minimum fee of $10 being standard. A $3,000 transfer could carry a fee of anywhere from zero to three-percent. Three-percent on $3,000 is an additional $90.

In order to make the most out of this debt consolidation opportunity, you should:

• Shop for a card with the lowest-interest rate.
• Look for a card that offers the low-interest rate for a year or longer.
• Get a card that does not charge balance transfer fees or no more than $80.
• Acquire a card that has a high credit limit, allowing you to consolidate as much debt as possible and leaving room for additional transfers

Remember, it is important to make timely payments, to pay as much as you can and to refrain from using your credit cards to make purchases. Doing these things will ensure that you are fully utilizing your opportunity to consolidate and retire your debt.

Credit cards offer consumers convenience, including protection under federal law, ease in making online purchases and lessening the need to carry cash. It’s impossible to rent a car without one. Cards carry numerous benefits, including discounts on various products and services and rewards programs.