Reduce credit card debt
If you have any outstanding balances on credit cards you may well be able to reduce the amount its goings to cost you, we do this via a ‘balance transfer’, and its actually quite simple.
First thing to look at is the APR (annual percentage rate) of your card (or cards), this is how much interest you are paying on any balance on the credit card. The higher this value the more money the debt it costing you in interest. So what you want to do it to transfer this debt onto a credit card which has a lower APR, preferably 0%.
There are many credit cards on the market with special introductory rates of 0% for a limited amount of time e.g. 9 months
To show how this works we’ll use a very simple example.
You have two current credit cards:
- Card A - balance of $5000 - APR 15%
- Card B - balance of $1000 - APR 20%
New credit card with APR 0%
- Card C - we balance transfer the $5000 and $1000 onto this card - APR 0%
(when applying for the new card there is normally an area of the form to fill in where you can detail any balance transfers you want to make, i.e. $5000 from Card A, and $1000 from Card B)
As this new card has 0% APR for the first 9 months (in this example), that means for the first 9 months we won’t have to pay any interest. So if you continue to pay the same monthly payments towards the debt,(whatever you were paying towards Card A and Card B), it will reduce the debt quicker.
NOTE - you still have to pay AT LEAST the minimum payments to the card, as specified by the credit card company.
EXTREMELY IMPORTANT
If you do transfer a debt via a balance transfer you MUST NOT buy anything with this new card, because this card will normally have a higher APR for purchases i.e. not 0%. If you do buy anything on the card, the new purchase will continue to accrue interest while the payments you make to the card will be used to pay off the balance transfered i.e. $6000. Just remember you can’t buy anything on your new card or it could cost you more money that the original two credit cards where costing you.