Alternative Option for a Credit Card Balance Transfer
We’ve all seen the glamorous advertising for balance transfers. The lour of 0% for six, twelve or twenty four months can be of real interest, especially if you’re paying 17.99% on an existing credit card at its limit. Some even taking it to extremes moving from one credit card provider to the next, taking up as many 0% balance transfer offers as possible.
Whilst balance transferring may have its benefits, there are also several drawbacks. As consumers continue to look at ways to make their money best work for them. Here is what you need to know.
There’s no doubt about, balance transferring is a great way to reduce interest costs applicable to your card balance. With many balance transfers offering 0% on outstanding credit card balances. This interest free period can last up to twenty four months.
Credit cards have a minimum monthly repayment, usually 2-3% of the outstanding credit card balance which is both good and bad. This means you’ll need to pay down the credit card each month, however can be crippling if you’ve maxed your card. For example if you owe $20,000 you’d be paying $400-$600 per month in minimum payments.
End in Mind
It’s hard to see the end result, especially when you’ve got a revolving door. No sooner do you pay down the card, you’ve found a way to bring it back up. Whilst transferring to a lower rate can help reduce the debt in the short term. There is no solution in the long term as the introduction interest free period will eventually come to an end. If you decide to move to another bank there is also no guarantee that your next card credit limit would be large enough to cover the outstanding balance of your previous credit card. Leaving you no better off than when you started.
Whilst some hop bank to bank and continue to make best use on the interest free periods. It is important to take into consideration what effect the multiple credit enquires will have on your credit file, especially when applying for other credit facilities in the future .
There are a few solutions that can be leveraged to get you back on track. To look at an alternative credit card balance transfer option, it is important to keep the long term view (with anything in life). If you own a property and there is sufficient equity available, you could look to set up another home loan to cover the credit card balance. Setting up another loan keeps the credit card debt separate, which means you won’t be paying the credit card debt over a 10, 20 or 30 year term. It also means you can select the number of years you’d like to pay off the debt. For example if you have $20,000 outstanding and you’d like to pay it off in 5 years you’d pay approximately $371.41 per month at an interest rate of 4.34% (variable) giving you the end in sight. It also allows you to pay out the full debt and cut up the credit cards so you can get back on track.