Low APR Balance Transfers
Consumers can use low APR balance transfers to consolidate outstanding balances and obtain savings via lowered interest rates on their credit card debts. However, careful thought and discipline is required in order to reap the benefits of this type of financial positioning. Proverbs 14:15 states that this is a positive thing: The simple believeth every word: but the prudent man looketh well to his going. The concept itself is not difficult to understand. The consumer applies for a credit card which offers a 0% interest rate for a certain period of time. Using zero or low APR balance transfers, outstanding debts are moved to the new card which currently does not charge any interest. In this way, the consumer is able to apply all future payments towards eliminating debt, rather than paying high interest charges. This allows a person to build an emergency savings account with funds which previously had gone towards interest, or apply more money toward reducing debts even faster. Of course the idea is that by the time the 0% interest rate expires, the debt will be paid off, or at least significantly reduced.
Several obstacles can interfere with these well-laid plans. Not all customers can qualify for such rates. Read all of the fine print on the application for low APR balance transfers before signing up for such offers. Sometimes a person will be assigned a higher rate after a review of the credit application or credit history. Be sure to note any transaction fees which accompany the balance transfer. Generally there is a fee for 3-5% of the transferred balance. Some companies have a cap on these fees, although the amount can very widely. Whatever the rate, it will usually be charged immediately when the money is transferred.
If the application is successful, continue to make minimum payments on the old account until the statement arrives which shows that the transfer has taken place. This can take up to a month at times. Meanwhile, investigate other ways to learn to live within your means. Many financial counselors advocate using a budget to keep costs in check. Even simply writing down every expenditure for a week or two can illuminate areas where money is flowing away, and where lifestyle changes could be made. Allow for a small 'treat' when significant debt reduction milestones are met, in order to encourage further efforts. There are any useful and interesting websites about handling finances and eliminating debt which may be consulted for further ideas about living well, yet reducing expenses.
Cleared accounts can look extremely inviting. If the balances appear on the card statements as cleared, there is a tendency to think that the card is available for further use. It can be difficult to remember that the debt has not yet been eliminated by balance transfers -- only moved to a place which will not charge exorbitant interest, so that the debt can be attacked with all available funds. Therefore, when funds are transferred using the zero or low APR balance transfers, the cleared accounts should be either closed (if the temptation to use them seems too strong) or at least filed away in a safe deposit box (or some other slightly difficult-to-access place) so that a spending urge can not sabotage attempts to eliminate debt.
There are many informative articles available on the Internet which can help an individual decide whether closing or keeping the account open will be best for his credit score. Needless to say, further credit purchases should not be made until all debt is eliminated. An emergency credit card can be reserved for true moments of need. Decide beforehand which conditions constitute such an emergency! Otherwise, if a person continues to charge items on the cleared card, soon he will have to deal with a new large debt in addition to the one which has been moved to a new location by low APR balance transfers.
Speaking of new large debts, another danger in using zero or low APR balance transfers as a tool for debt reduction is that there are severe penalties for late payments. Usually the zero or low interest rate is immediately replaced by an astonishingly higher number -- close to 29% in one case. Rates like that can cause debt to skyrocket, especially since the original debt is likely to be several thousand dollars or more. For example if the debt was $2,000, a 29% interest rate would result in $580 in interest being tacked onto the original debt. A debt of $5,000 at the same penalty rate would result in $1450 in interest! Also, further opportunities for taking advantage of low APR balance transfers would be out of reach for quite some time. Therefore, timely payments are a real necessity for someone seeking to eliminate debt. Arranging for automatic payments to be disbursed each month may be a wise course of action to pursue in order to prevent unpleasant consequences such as these.
One further idea about maintaining a check on credit card purchases is to have one card which must be paid off every month, and one available for larger purchases which allows a longer period for repayment. The latter would be used only for emergency items such as repairs on a car which is necessary for commuting to a job, or on a refrigerator which suddenly expires. Use the card which must be paid off every month for budgeted expenses. Get in the habit of using cash whenever possible. Paying in cash helps consumers realize that actual money is being spent. Those who use credit cards for consumable items such as food tend to spend more when they are using a credit card. Using cash calls for some pre-planning, which also can act as a check upon spending and an aid to budgeting. This combination of careful planning, persistance in corrective actions and the use of zero or low APR balance transfers can result in significant reductions to stubborn debts.
Several obstacles can interfere with these well-laid plans. Not all customers can qualify for such rates. Read all of the fine print on the application for low APR balance transfers before signing up for such offers. Sometimes a person will be assigned a higher rate after a review of the credit application or credit history. Be sure to note any transaction fees which accompany the balance transfer. Generally there is a fee for 3-5% of the transferred balance. Some companies have a cap on these fees, although the amount can very widely. Whatever the rate, it will usually be charged immediately when the money is transferred.
If the application is successful, continue to make minimum payments on the old account until the statement arrives which shows that the transfer has taken place. This can take up to a month at times. Meanwhile, investigate other ways to learn to live within your means. Many financial counselors advocate using a budget to keep costs in check. Even simply writing down every expenditure for a week or two can illuminate areas where money is flowing away, and where lifestyle changes could be made. Allow for a small 'treat' when significant debt reduction milestones are met, in order to encourage further efforts. There are any useful and interesting websites about handling finances and eliminating debt which may be consulted for further ideas about living well, yet reducing expenses.
Cleared accounts can look extremely inviting. If the balances appear on the card statements as cleared, there is a tendency to think that the card is available for further use. It can be difficult to remember that the debt has not yet been eliminated by balance transfers -- only moved to a place which will not charge exorbitant interest, so that the debt can be attacked with all available funds. Therefore, when funds are transferred using the zero or low APR balance transfers, the cleared accounts should be either closed (if the temptation to use them seems too strong) or at least filed away in a safe deposit box (or some other slightly difficult-to-access place) so that a spending urge can not sabotage attempts to eliminate debt.
There are many informative articles available on the Internet which can help an individual decide whether closing or keeping the account open will be best for his credit score. Needless to say, further credit purchases should not be made until all debt is eliminated. An emergency credit card can be reserved for true moments of need. Decide beforehand which conditions constitute such an emergency! Otherwise, if a person continues to charge items on the cleared card, soon he will have to deal with a new large debt in addition to the one which has been moved to a new location by low APR balance transfers.
Speaking of new large debts, another danger in using zero or low APR balance transfers as a tool for debt reduction is that there are severe penalties for late payments. Usually the zero or low interest rate is immediately replaced by an astonishingly higher number -- close to 29% in one case. Rates like that can cause debt to skyrocket, especially since the original debt is likely to be several thousand dollars or more. For example if the debt was $2,000, a 29% interest rate would result in $580 in interest being tacked onto the original debt. A debt of $5,000 at the same penalty rate would result in $1450 in interest! Also, further opportunities for taking advantage of low APR balance transfers would be out of reach for quite some time. Therefore, timely payments are a real necessity for someone seeking to eliminate debt. Arranging for automatic payments to be disbursed each month may be a wise course of action to pursue in order to prevent unpleasant consequences such as these.
One further idea about maintaining a check on credit card purchases is to have one card which must be paid off every month, and one available for larger purchases which allows a longer period for repayment. The latter would be used only for emergency items such as repairs on a car which is necessary for commuting to a job, or on a refrigerator which suddenly expires. Use the card which must be paid off every month for budgeted expenses. Get in the habit of using cash whenever possible. Paying in cash helps consumers realize that actual money is being spent. Those who use credit cards for consumable items such as food tend to spend more when they are using a credit card. Using cash calls for some pre-planning, which also can act as a check upon spending and an aid to budgeting. This combination of careful planning, persistance in corrective actions and the use of zero or low APR balance transfers can result in significant reductions to stubborn debts.
Low APR Balance Transfers
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