Friday, April 30, 2010

Transferring Debt

So something that can make sense for people is to transfer debt from a high interest credit card to low or 0% interest rate credit card. This can be a great incentive to save money by transferring debt. You could go from $100 in finance fees per month to paying $0 for an entire year(most companies charge 3% of the transfer ie$30 or every 1K). If you are going to pay off this card in less than a year this is a great savings.

The biggest problem or concern with this is you have to stop adding debt.
Just because you know have $0 on your Visa card and $5000 on your new Discover card, doesn’t mean you have money to spend. I only recommend doing this if you take the old and the new credit card and either cut them up or have someone hide them.

Because think about it, why do companies offer this great rate? For a couple of reasons:
1) if you miss a payment the interest rate goes up 2) if you don’t pay off the entire amount some credit card companies charge you interest from the first day you transferred the balance 3) most people do not pay off the entire debt and then the company is back to earning the same finance charge they usually get 4) they anticipate you will put new debt on the credit card so they can make some more money 5) they are still making some money off of you for just paying off your debt 3% is some money that the company has made.

So my message is to be weary of the credit card balance transfer. Only do this if you know what you are getting yourself into. CAUTION CREDIT CARD BALANCE TRANSFERS!!!

No comments:

Post a Comment