Transferring Credit Card Debt
A bank profits from getting in funds at one level (Deposits) then lending the money back out at a higher level (difference equals profit) so giving you money for no return (zero percent interest) doesn’t make economic sense.
Statistically though most people won’t actually get their transferred balance paid off during any interest free period, therefore short term loss means a longer term gain for the bank once the interest free period has finished.
Now this doesn’t make it right or wrong it simply means if you are transferring your balance then you owe it to yourself to make sure you maximise the opportunity you are being given.
Remember your actions are leaving a financial fingerprint so if you are considering transferring that credit card debt make sure you are doing it with a plan and not a wish.
Here’s a few things to take into account if you’re considering transferring balances.
1. Do the sums
Transferring the balance isn't simply about getting a lower or nil interest rate. Eliminating this debt means you need to work out what your repayments need to be so you can clear as much as possible within the Interest Free period.
Once you know how much you are able to pay set up an automatic payment and then freeze the credit card in a block of ice so you aren't tempted to use it. Set yourself a reward for not accessing the card during the interest free term.
2. It’s all in the small print.
You may find the “Interest Free” period is only applicable as long as the card isn’t being reused. If you have had a previous habit of recycling debt, that is making a payment then reusing what becomes available then you will need to break this habit so check whether this applies.
That's why i suggest the block of ice.
Make sure you are aware of what other conditions are hidden in the small print. Are there fees associated that your previous card didn’t have? Some cards require you must make at least one transaction a month so if this is the case ask how that effects you.
3. Sacrifice isn’t forever
With sacrifice comes reward so consider what you can give up for a time to help keep the rest of your finances balanced while you focus on illuminating the debt. Perhaps a garage sale is in order or there are a few things laying around you just don’t use any more. Cash them up rather than have them sitting there collecting dust. It all helps.
4. Stash some cash
Whether it be in your sock drawer or another bank account consider how to build a cash reserve. It’s often heard “Save First, Spend Later”
Whether it be $10 a week or $100 is irrelevant, having some cash reserves stashed away means you’re less likely to need to resort back to using your credit card. Focusing on paying down your debt is great but balancing that with building a reserve that can cover anything unexpected is equally important.
It may take a little longer to get rid of the debt but if paying for things with your own cash through this process will build great habits.
5. Set a budget
Getting rid of your debt happens faster if you have a clear understanding on what your income and expenses are and a way to monitor what you are actually spending your money on. Without one there is a high likelihood you won't achieve the goal of no debt.
Whether it is a notebook, excel spreadsheet or a budgeting planner use something that will help you stay connected with where your money is going and keep you focused.
Remember as a FREE registered member you have access to a budget planner, if you aren't sure how to get the best use out of the planner schedule a FREE 15-minute live demo and I can walk you through it.