A lot of people can really benefit from using a balance transfer for their rising credit card debt. When you look at the overall credit card situation of Americans, the statistics can be quite scary. According to reports, more than half of credit card holders carry debt. These consumers are obviously in need of a good debt relief program.
Admittedly, there are a lot of options to get out of debt. However, you need to match the debt solution with your debt and financial situation. If you do it this way, you can expect to get more than just debt freedom once the program is done. You can be assured that you will come out of it with a better financial position. That means if you have financial goals, you will not find yourself back to square one after debt relief. While you are in the midst of the debt solution, you are also inching closer to your future financial goals.
Using a balance transfer as a debt consolidation strategy can be effective, as long as you are sure that it is the right fit for your financial situation. You need to know the signs that will confirm if it is the right debt consolidation strategy for you.
Signs that a balance transfer is perfect in consolidating debt
In one survey done about this debt consolidation option, it is revealed that almost half of the respondents have never tried to use a balance transfer to get out of debt. This is unfortunate because there are certain financial situations when it is the perfect way to pay off high-interest debts. Here are the signs that will confirm that this is the right option for you.
You have a high chance of getting a new account approval
A balance transfer is a new credit card account. If you have a good credit score, it should be easy for you to get approval. And if you can prove that you can pay your dues, then there is nothing that will really hinder you from getting an approval. Bottom line is, you should consider if you have a sure chance of being approved. Otherwise, the credit inquiry that the application process will only bring a negative effect on your score without helping you move forward with your chosen debt solution.
You qualify for the promotional rate
In some cases, people are approved to open and transfer their balance, but that does not mean you qualify for the introductory promo of a 0% interest rate. If you cannot qualify for it, then what is the use of opening a new card? The 0% interest will really help you save a lot of money. Make sure that you will qualify for this.
You can afford to pay the full balance by the end of the promo period
This is actually very important. The introductory promo of 0% interest has an expiration. To maximize the benefit of this debt relief program, you need to make sure that you can pay the whole balance of the debt once the promo period ends. That is the only way you can really save a lot of money. At the very least, you should aim to pay a significant amount of what you transferred.
You know what the interest rate will be after the promo ends
This is information that not everyone seeks out. While the introductory promo rate is attractive, you should also get to know the interest rate that you will have once it all ends. Most of the time, the rate is very high. If you are not careful, you might end up accumulating a huge balance once more. Make sure you ask about this so you will not be caught by surprise.
Your income can sustain the payments through the promo period
A balance transfer is a huge improvement from paying only the minimum of your credit card debts but it means you need to make bigger monthly payments. You should make sure that your income can support the bigger payments no matter how long the promo period lasts. This way, you will not waste the 0% interest rate.
All of these signs do not have to be applicable to you. However, the more that applies to you, the better it will be. It will increase the benefits that you can expect from a balance transfer.
How to make a balance transfer effective
Of course, transferring all your balance into one credit card account is not the end of it. Even if there is an offer of a 0% interest rate over a long period of time, you need to ensure that you can meet your payments. You still have a couple of months or even more than a year to pay your dues. Here are two tips that you can use to help you succeed in paying off the balance that you transferred.
Lower your expenses significantly during the promo period
It was mentioned that it is very important to pay the entire balance that you transferred before the promo period expires. The best way to accomplish this is by lowering your monthly expenses significantly. This will free up a lot of funds in your budget – allowing you to make bigger payments each month. The bigger the payments, the more likely that you can pay off the balance within the promo period.
Do not use the card for new purchases
Another thing that you should do is to avoid using the balance transfer card for new purchases. The 0% interest that was offered to you is only applicable to the balance that you transferred. It does not apply to new purchases. Most likely, using the card for new purchases will use the high post-promo interest rate. You need to curb your overspending habits because it can compromise the progress that you have made on your debts.