Should I transfer my credit card debt?
Credit cards are one of the most expensive forms of debt as their Annual Percentage Rate (APR) of interest is extremely high in comparison to other types of borrowing.
If you are in credit card debt, sometimes transferring that sum to another card with a lower APR can save you hundreds of pounds and help you to pay off the outstanding debt at a quicker rate.
The first thing you need to do if you’re considering swapping your debt from an old credit card to a new one is to research cards offering 0% balance transfer. This means they won’t charge you for moving the money you owe onto their card.
The next thing you need to look for is which of these 0% balance transfer credit cards offer the best interest rates. It’s not simply about finding the card with the lowest APR: some of these will price their interest rates relatively low for a limited time period in order to sign you up, but when this initial deal ends your interest charges could rise significantly. You may well be better off choosing a credit card that has a slightly higher APR that is fixed for a longer time period, as this will give you longer to pay off your debt.
Transferring your balance to a new credit card can also be a good idea if you’re trying to pay off debts from more than one card. Rather than trying to juggle multiple repayments at varying interest rates and different minimum payment requirements, due at different times of the month, consolidating your credit card debts will straighten out in your mind exactly how much you owe in total, how much you must pay each month and when you need to pay it.
One thing to be aware of when it comes to debt transfer is that some banks may operate under different names, but they’re actually different branches of the same lender. This means that when you look into transferring money from one card to another, they might not let you do so because you’re effectively just moving money within the same firm. – it’s not going to bring them any new custom so they’d prefer you to stay where you are, paying the higher interest rate.
The number one golden rule with transferring debt onto a new credit card is that you must try and pay off your balance in full before the 0% deal comes to an end. Whilst your new provider may welcome you on board by letting you transfer your debts for free and charging little or no interest on that sum for a fixed term, once that period ends you could find yourself facing charges that are even higher than your current credit card interest rates.
In order to successfully pay off credit card debt, you must avoid the temptation of paying the minimum payment only due each month. If you can afford to pay more then pay more – it might mean making a few sacrifices over the next few months but you’ll reap the benefits in the long run.
It’s best to calculate your monthly budget and work out how much you can spare each month to contribute towards your debt. Set up a standing order for the day you receive your wages, that way you’re not tempted to dip into the money you’ve set aside to pay off your credit card. Be careful to choose an affordable amount though; if you overcompensate and set your contributions too high it might lead you to missing a minimum payment further down the line, which could mean you face penalty charges from your credit card company.
To avoid slipping back into bad habits, once you’ve transferred your debt to a new card make sure you cut up your old credit cards. It’s not necessary to shut down your old credit card accounts – unless you feel it necessary to stop your spending – but by destroying the card itself you’re rendering yourself unable to turn to your old faithful payment mechanism if something expensive catches your eye.
Even if you’re tempted to keep your cards in case on an emergency, add up how much credit you have access to across all the credit cards you own. It probably runs into thousands, maybe even tens of thousands, of pounds: are you realistically going to need access to that much money at short notice? Or are you just making excuses in case you want to start spending beyond your means again?