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Balance transfer cards: Effective use of financial empowerment

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By: sanderspatricia29
on 14th Jul,2016

When you know how to manage credit cards, then you can take their advantage to the fullest. Or else, these plastics have the potential to wreck your financial ship.
balance-transfer

Balance transfer cards can significantly reduce the interest you pay on your credit cards. They would lower your monthly debt repayment amounts besides increasing your net savings. There are no extra costs to take out such cards.

But, they can empower you to consolidate all of your credit card balances into one single 0% APR (Annual Percentage Rate) card.

How to use a balance transfer card smartly

1. Give importance to highest rate cards

You need to understand the rate of interest applied to your credit cards. Cards with a higher rate of interest will cost you more each month. So, to pay off your high-interest credit cards, you can transfer all the balances to your 0% APR card.

A balance transfer card allows you to transfer multiple credit card balances into it. It comes with a zero or low-interest rate for a definite promotional period. It’s also known as Zero APR card or 0% Annual Percentage Rate card. A 0% APR card is one of the most popular credit card consolidation platforms in the banking industry.

In case you’re denied a balance transfer card, you can choose any credit card that offers a lower rate than your existing cards. Transfer your balance from the costliest credit cards to the new balance transfer card.

Read more: Do's and don'ts of credit card balance transfer

2. Create an emergency fund

You can create an emergency fund while you pay off your credit card debt via the balance transfer card. An emergency fund will provide you a much-needed financial cushion to cope with unplanned life events like a car repair or medical bill payment. As a result of an emergency fund, you’ll enjoy a continuous cash flow.

3. Same bank balance transfer isn’t allowed

You can’t transfer balances from one credit card to another if they’ve been issued by the same creditor. If you’re trying to transfer debt that’s on a credit card, then you’ll have to look for balance transfer cards with other credit card issuers.

4. Spot the difference between cards

0% APR are two types - one is introductory rates–purchases and the second one is balance transfers. Both offer zero interest but work differently.

(i) Introductory rates-purchase card:
Credit card issuers won’t charge interest on purchases you make using an Introductory rates-purchase card. However, you’ll have to make minimum payments each month, without attracting any interest charges.

All the interest-free purchases are usually provided during a promotional period that could last for about 6 to 18 months. But, once the promotional period expires, you’ll have to pay the regular APR on any remaining balance on the card.

(ii) Balance transfer card:
Zero percent balance transfer cards are different. You can transfer one debt – generally from a different high-interest credit card onto a new card with 0% interest on balance transfers. The term ‘balance transfer’ comes from transferring your balance from one creditor to another. Often, there’s a transfer fee on the balances transferred but, there’s no fee for purchases made from the same card.

5. Follow a payment plan

Create a practical monthly budget and a debt repayment plan. You can use various online budgeting tools to help you find out how much debt repayment you can afford each month. Moreover, you can organize your financial obligations, daily household expenses and savings into one single platform that’s easy to keep track of.

0% APR card is solely for balance transfers. All fresh purchases would attract the interest rate of the credit card and will be added to your existing outstanding credit card balance. To avoid acquiring fresh debt, rarely use your credit card while you make the monthly repayments.

Never cancel your cards as doing so may lower your credit to debt ratio and thereby, pulling down your credit score. Borrowers with a poor credit rating may find it tough in obtaining a car loan or have their home refinanced under lucrative terms & conditions.

Consistency is vital in paying off credit card balances. Once you’ve decided on a certain monthly repayment amount, you need to consider it as a non-negotiable monthly cost (or better still, as a non-discretionary item). You may speed up the process of debt repayment by putting in any extra dollars such as work bonuses or tax returns and become debt free faster.

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