Balance transfer cards can be an excellent way to regain control of your finances and reduce debt. However, it’s important to understand how these accounts work in order to get the most benefit out of them.
Why Choose Balance Transfer Cards?
The basis behind balance transfer cards is to offer you the advantage of rolling your outstanding balances from other credit cards and store cards into one convenient account.
In most cases, the interest rates you’re paying on your current balances will be quite high. By comparison, balance transfer cards offer much lower rates on the balance amount and often have competitive rates on purchases too.
How You Save Money By Transferring Balances
When you consolidate your old accounts over to balance transfer cards, you should find that the amount of interest you’re being charged is drastically reduced. This can often lower your minimum monthly payment due, as well as reduce the total amount you’re charged in interest.
The lower repayment amount should mean freeing up more of your income each month, but it also means you’re paying out much less in interest charges over the time it takes you to repay the balances completely.
Using Balance Transfer Cards for Debt Reduction
Look carefully at the amount of interest you’re being charged on your current accounts. You should find that most accounts are charged anywhere between 15% and 25% on the outstanding balances. This usually means the bulk of your monthly payment is covering only the interest charges with just a little left over to pay down the balance.
In order to get the most benefit for debt reduction purposes, it’s important to put some of the savings you’re making towards paying extra on the minimum payment each month.
It’s also important not to charge new purchases to your balance transfer cards, as purchases are charged very differently to transfer amounts. You may find that while the balance of your old accounts might be charged at very low rates, often the rate applied to purchases can be higher.
Some lenders may also continue to put your monthly payments towards repaying the balance transfer amount first, leaving the purchase amounts accruing those higher rates. This can actually slow down your debt reduction efforts.
No Interest or Low Interest?
Different lenders offer varying conditions and rates on their balance transfer cards. While it’s possible to access 0% interest rates for an introductory 6 month period, this will only be useful if you believe you can repay the balance fully in this time before your account reverts back to the regular rate.
If your outstanding balance is higher than the amount you think you can reasonably repay in this time, you might want to consider a card with a slightly higher balance transfer rate over the entire period. This will allow you to benefit from reduced rates that won’t suddenly increase before you have had time to reduce your balances.
Balance transfer cards can offer you a significant advantage if you’re serious about regaining control of your finances, but be sure to learn a little about how they work before you choose the right one to suit your needs.
Related posts:
- Low Interest Rate Balance Transfer Credit Cards And How They Work
- How Low Interest Rate Balance Transfer Cards Work
- How 0 Interest Balance Transfer Credit Cards Work
- Balance Transfer Cards Becoming More Popular In Australia
Posted on Tuesday, April 6th, 2010 at 1:19 pm
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