Best Credit Card Deals for Reducing Debt
Lower Interest Payments and Card Benefits Can Speed Up Debt Pay Off
Oct 13, 2009
Online advertisements and print mailings are loaded with credit card offers, all purporting to be the best credit card deals for every debtor. When choosing a credit card, consumers seeking to lower their interest payments should be aware of all the pluses and minuses entailed within their decisions. Is a cash back credit card worthwhile if the creditor requires an annual fee? Is there a balance transfer fee? How many credit cards are too many credit cards?
These are just some of the questions each consumer should ask himself or herself before opening a new credit card account. Depending on each individual's financial situation, the answers to these questions will vary.
Debt Consolidation by Transferring Balances to "Zero" or "No Interest" Credit Cards
Sure, transferring a high balance through a 0% credit card interest offer seems like a smart idea, and if the high balance is accruing interest at just under usury rates, it probably is a great idea. But 0% interest rarely, if ever, equates to no cost to the consumer. Here's what balance transferring hopefuls should look for:
- Annual Fees and Higher APRs — Certain credit cards lure consumers in with low balance transfer rates, allowing huge balance transfers that credit card applicants will have little chance of paying off within the duration of the balance transfer offer period. What happens when the promotional period ends? Approved applicants may be left with a smaller balance (hopefully) accruing interest at a much higher rate than their former card. Additionally, the new card may require an annual fee or other fees that make their obtainment less economically fortuitous.
- Balance Transfer Period — Credit card companies offer promotional interest rate periods varying in length from five months to over one year. If the promotional period ends long before the applicant could reasonably pay off his or her balance, he or she may be stuck with a higher APR. To compound this problem, these credit cards often offer low, promotional interest rates on purchases. Applicants are encouraged to use their new cards, and in doing so, they make payments toward their new purchases each month rather than the balance transfer they were trying to pay off in the first place.
- Balance Transfer Fees — Balance transfer fees do not, in themselves, destroy the financial advantages to transferring balances from high interest cards to cards with low or no interest offers. Some offer a fixed fee, say $50 per balance transferred, no matter how big the balance transferred may be. Others charge fees based on a percentage, usually 3-5%, of the balance transfer. Consumers need to do a mini cost-benefit analysis to determine how much they will save in interest during the promotional period by transferring versus total balance transfer fees to determine whether their transfers are financially sound.
- Short Grace Periods — For years, grace periods had traditionally been 30 days. In essence, consumers who paid their balances within those 30 days received no interest charges. But tradition is lost on some lenders, and grace periods are now sometimes shorter or non-existent. It is best to avoid cards without grace periods altogether.
A useful way to accrue more intelligent credit card debt is to use cards geared toward the consumer's lifestyle. Cards that offer air travel miles may be a good way for frequent fliers to save some cash. Gas rebates are great for most consumers. Straight cash back accumulation based on charged purchases is a useful perk since it can usually be applied as a credit to the account.
The trick is to avoid the retailer bargains and other uses the credit card companies try to entice debtors to spend this accumulated money. With any card perk, one must ultimately determine if the perk's advantages outweigh any offset costs, be them annual fees, increased card usage, or high interest rates.
Too Many Credit Cards Can Lower Credit Ratings
Contemporaneously opening several new accounts, acquiring multiple balance transfer cards, or otherwise simply having too many open accounts may lower credit ratings, making it more difficult to receive loans, credit cards, and other credit. Additionally, failing to keep up with payments on new accounts will have the same effect.
Of course, the best way to avoid balance transfer issues is to limit credit card spending. Credit cards offer a convenience that some feel they cannot do without. In reality, a strict, stable budget can eliminate most credit card debt. Those having difficulty receiving credit or alleviating debt are encouraged to contact a reputable financial adviser.
For more consumer-friendly articles by this author, see Getting Car Quotes and Other Auto Info Online, How to Eat Cheap - Best Online Food Coupon Deals, and Booking Discount Air Travel Reservations Online.
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