The best way to get rid of your debt is to consolidate it. There are a few ways to accomplish this, but generally, it is preferable to be able to consolidate your debt yourself. You can either do this with a personal consolidation loan or you can also explore the possibility of doing a balance transfer with a credit card.
If you are considering the credit card balance transfer option, here is what you need to know.
The benefits of consolidation with credit card balance transfers
When you are making multiple credit card payments and are only able to make minimum payments every month, interest keeps accumulating on your balance. The problem with minimum payments is that a high proportion of your payment goes to pay for your interest. It’s a drop in the bucket against your actual balance.
“If you are serious about becoming debt-free, you need to be more strategic in your debt repayment. Consolidating multiple payments into one lets you put more money directly on to the principal of your debt, which means that you will pay it down more quickly,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“Doing a balance transfer can also lower your interest rates, depending on the card that you intend to use. Paying less in interest will accelerate your debt repayment even more,” says Schwartz.
How to do a balance transfer
To begin, collect all of your credit card statements. You need to know exactly how much you owe and what the interest rates and other charges you are paying on each card. If you currently have a card that a) has room on it and b) offers a comparatively lower interest rate on it, you can simply pay off the other cards with that card.
Alternatively, you can seek out a new card for the balance transfer. There are a number of credit cards available in the marketplace that are promoted as “balance transfer cards”. They offer things like an introductory low (or no) interest rate; many (but not all) waive fees for balance transfers as well.
If you are opening a new card and are enticed by the promotional interest rate, make sure that you read the fine print and fully understand the terms and conditions around the promotion. When does the promotional period end? What will your APR be after that? What does that mean for your credit card balance?
You want to ensure that making a switch to a new card isn’t actually going to cost you more money in the long run. Even with combining your debt payments into one, paying out substantially more interest isn’t a money-saving move.
After you’ve made the transfer
The objective of a balance transfer consolidation is to become debt-free. Avoid running up other credit cards. You’ll end up with twice the debt to deal with. Consider closing cards that you aren’t using and keep your balance transfer and one other card open for use.
Make sure to have a budget in place that will help you direct as much money as you can to pay your debt while letting you spend within your means.
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