Two of the popular ways to consolidate debt are debt management and debt consolidation loans. However, there is another option that consumers may want to use. We are talking about balance transfer. This is an effective debt relief method that have gotten people out of debt effectively.
There are some similarities and differences with the other methods of debt consolidation. Of course, the common trait is the consolidation of debt. You will literally transfer your high interest credit account balance into a zero interest card. Be prepared with some cash though because you will have to pay for this transfer. It is usually a percentage of the debt amount that will be shifted to the new card. It all depends on the card company that you will use to transfer your debts to but 3% is the standard practice.
Although there will also be a lowered monthly payment, it will only be for a short period. The usual term is between 6 months to a year. The lower payment happens because of the zero interest promo period of the card. Any payment that the consumer will make during this period will all be towards the principal debt. After that, the consumer may be faced with a high interest once more.
If you wish to use this as your way to get out of debt, there are a few things that you have to work on.
The crucial period is the time when you have the zero interest. You have to maximize this opportunity to pay off a huge chunk of your principal debt. A suggestion to adapt a frugal budget may be in order here. This means living on a very tight budget. It means cutting back drastically on your fun activities, commuting to work to save on gas, not going out on weekends and not buying anything for the next few months. In other words, anything that you can give up that will not kill you in the process should be given up so the funds can be sent towards your debt payments. This is only for a short period so you may be able to survive through the frugality.
A pitfall that you should be cautious of are the other credit card accounts that you emptied of debt. Make sure that you will not use them again. If you have to cut them off, do so. Although your credit score will decrease, you can always work on increasing it as you pay off the debts on your balance transfer card.
Another reminder is to be careful in using this card for purchases. New purchases are usually not covered by the zero balance. This is usually for the transferred debt and cannot be used for anything else.
Read through the fine prints of your balance transfer so that you know important details like when the zero interest will expire. You have to prepare for this and build your debt payment plan around it. Not only that, you have to make sure that you will never get yourself in debt again. Consider the reasons why you got into that situation in the first place and correct the mistakes you made in the past.