Managing Your Matters Blog
Credit card debt is one of the most gnawing financial problems facing a lot of Americans. It's fairly easy to amass and not so easy to erase. And it becomes like a mold, with the usual high interest rates it just grows and grows and can become almost impossible to pay off.
But finally, there is some good news! Credit card companies have given us a break in the form of 0% interest balance transfer credit cards. This allows a period of time to address the debt once and for all.
There are many offers out there and various factors to consider.
There is the time allowed for payoff at 0% interest. Some have terms up to 2 years, and some are less than that of a year.
Then there is the issue of a balance transfer fee. Most have a 3% balance transfer fee, but some have a lower rate of 2% and some even have offers of zero fees. Whatever the fee, it will be a lot less than paying a high interest rate on debt over that period of time.
Terms will also depend on the amount you want to transfer. As usual the terms are always a give and take situation.
If you want a longer term, the transfer fee may be more. But search around to find the card that best fits your needs. There are a good number of transfer offers out there.
Your credit score will be taken into consideration, but I have seen offers on these cards with credit scores in the low 600s. The terms might not be so attractive, but it's certainly worth exploring.
If your score is really too low, you might consider spending some time to repair your credit. Obtaining a secured card and ensuring regular monthly payments is one way to improve your score.
Once you have chosen your card and terms, now it's time to start making a plan. Divide the amount owed by the number of 0% months and set up those automatic monthly payments from your bank account. The best way to decide how much you can pay each month is to develop a spending plan. This means going through the last three months of income and expenses and categorizing all items: groceries, dining, entertainment, home items etc.
See what your plan looks like and where you can possibly cut back. It's surprising where money goes and where we can cut back without too much pain. A few hundred here and a few hundred there will soon add up.
For example: If your debt is $10,000 and the terms of the card transfer are 0% interest for 12 months, the payment will be $833.00 a month. Put that amount in your spending plan as a set amount, and set up an automatic withdrawal every month. If that amount is too much to handle, then set up for as much as you can even if it's say half of that: $416 a month. At the end of the year your debt will be down to $5,000 and you can transfer the remaining balance again to another 0 interest card, and with the same terms you will be debt free in 24 months.
The key to success is to make a plan to pay the debt off in the allotted time and stick to it. The mistake I see is to transfer a debt at 0 interest and then forget about it with no plan in place to pay it off. At the end of the term you will be no further ahead and have the same debt along with more debt on other cards.
0% interest cards are a fantastic opportunity get rid of pesky debt and start afresh. So, make a plan and be debt free!