Do you have more than 1 credit card? Are you looking to reduce your debt in 2013? if you have answered yes to either of these, considering a credit card balance transfer is a good step to take. We all know how confusing it is when you have multiple credit, with a variety of interest rates, sometimes keeping on top of it can seem like an uphill struggle. A nice and clear way to consolidate and cut down your debt is to transfer your balance to a new credit card with a lower rate.
A balance transfer is simply taking your existing credit and transferring it to a new credit card at a lower interest rate for a set term – thus giving you the time you need to make your repayments.
There are many creditors to choose from, so research is the key component here, but to give you a helping hand, here are a couple of noteworthy things to look out for!
- What is the interest rate on your potential transfer – 0% over a set term or lower in general than your current term?
- Is your credit history strong and healthy?
As with any form of lending, once you have picked your lender they will run a credit check to find out your risk factor. Pre Credit Crunch, the guidelines for lending were a lot more lax then they are now, so you will need to have a good level of credit history to be accepted for a balance transfer.
Once you have been accepted then follow these steps to make sure that you have covered all the bases before signing on the dotted line
Can you repay the balance within the 0% fixed term?
Fixed term lengths will usually be 6 months for 0% cards. If you can repay the full debt in this time the this is perfect. If not then have you considered a fixed lower interest credit card? the repayment terms for these are usually 9 – 12 months, however you have to remember that you will be expected to pay a small amount of interest!
If you get to the end of your term and you haven’t been able to completely wipe off your debt, then you will have to start paying interest which can certainly make this final amount a lot harder to repay.
How will you be using the credit card?
A common trap that a lot of people get stuck in is they transfer their balance to a 0% card, and then continue to use the new card make payments. If you want to pay off your card debts, then this will be a lot slower if you continue to use the card. My advice would be to keep the new card safe at home and not have the temptation with you.
Also its worth mentioning that once you have transferred to your new card, then cancel and close down the old one. Having personal credit that you are not using can affect your credit history in the long run!
Does your credit limit cover the debt?
You may find that when you transfer your card, the credit limit is less than available on your original card. There are many reasons that this may happen, your credit history and the economy can directly affect the limits you are able to borrow. If your new card doesn’t cover all your debt, don’t panic – paying off some debt is better than paying none of it. If you have balance left on your old card then considerer paying the leftovers in full to wipe out that card altogether. Your bank/lender will be able to advise you on other options that will suit your needs.
Whatever you decide to do, the main point to remember is how good you will feel once you are debt free!