Transferring credit card debt?  

If you take into account that a bank makes its profit from getting in funds at one level then lending them out at a higher level (difference equals profit) then giving you money for no return (zero percent interest) doesn’t make economic sense.

Unless of course the bank have done their homework and recognize that most people won’t actually get their card paid off, therefore short term loss means a longer term gain for the bank as soon as their prevailing interest rate kicks in.

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 maximize the opportunity you are being given.

Here’s a few things to take into account if you’re considering transferring balances.

1.  Do the sums

Transferring the balance shouldn’t be simply about getting a lower or nil interest rate. Being serious about eliminating this debt means you need to work out what repayments need to be made so you can clear all or as much as you can within the Interest Free period.

Set up an automatic payment and freeze the credit card in a block of ice so you can’t use it. Consider what motivates you, usually its “pain” or “gain” so set a consequence worth avoiding if you do break the ice to retrieve the card before its paid off. Better still set yourself a reward for leaving it frozen until your debt is eliminated.

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.

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 transactions a month so if this is the case ask how that effects you.

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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” and I’m sure the wealthy didn’t all start off amassed in wealth they simply learned and applied habits, one of those was to save so start today.

Whether it be $10 a week or $100 is irrelevant, having some cash reserves stashed away means you’re less likely to need to fall back on using your credit card for the unexpected. Focusing on paying down your debt is great but balancing that with building a reserve may mean it takes a little longer to get rid of the debt but if something unexpected comes up and you use your own money then subconsciously you still feel like you’re winning. You didn’t default back to using credit and increasing your debt. How we think is as important as how we act.

5.  Set a budget

Getting rid of your debt is important but if you don’t have a clear understanding on what your income and expenses are and a way to monitor them then it is likely no matter how hard you try you’re going to reach the end of the Interest Free period and still owe just as much as when you started.

Remember my earlier comment about economic sense, failing to plan is simply planning to fail so get your budget in order today and plan to rid yourself of this crippling debt. It makes good economic sense for you and your family to succeed, good economic sense for the bank for you to fail.

For help creating a plan PLEASE CONTACT US, or check out our ONLINE PLANNER.

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Author: Anita Stokes – National Award Winner 2013

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