Should you transfer your credit card balances?
When you're working to raise your credit score, you should be intent on paying down all outstanding balances, and one way to get that done faster is to pay less interest and more principle on outstanding debt.
Thus, if you're paying high interest on a credit card debt and are offered a new card or a balance transfer to an existing card at a much lower rate, moving the balance can be a good idea.
Say you owe $5,000 at 15% and could transfer that balance to a different card at 6% - you're paying $62.50 per month interest on the present card and would only be paying $25 per month after the transfer. In other words, if you maintained the same payment, your debt would be reduced by an additional $37.50 per month. It doesn't sound like a lot, but in a year's time that's $450 – almost a tenth of your original balance.
This, then, is something you should consider. But before you make the decision, check out the details. Some companies charge a set rate for the transfer – it could be a percentage or a flat rate. Say $75. So you need to do the math and determine how much interest you'll save in comparison to the cost of the transfer.
Next, you need to be sure that the lower interest rate isn't going to go away in 3 or 6 months and put you into a rate even higher than you were paying before. Try to find a card with a lower rate that's fixed until the balance is paid off.
Lastly, you need to be careful not to "max out" any one card. Ideally, no one card should carry a balance over 30% of what's available to you. So resist the temptation to take the balances from all your cards and use all available funds on one with a low interest rate. Even though your other cards might then show a zero balance, having one card at the limit will reduce your credit score.
If you do decide to transfer a balance – or more than one – do discipline yourself to keep making the same payment you made before the transfer. That's the path to reducing your debt, raising your credit score, and finally removing the burden of debt from your shoulders.
Every time you make a payment, look at the amount of interest you're paying. That's money you could be spending on something that will benefit you or your loved ones, so make it your goal to start keeping that money in your own pocket just as soon as possible.
About the author: John Rasor is the owner of http://www.creditscorecowboy.com/. And a 20 year veteran of the mortgage and real estate business. CreditScoreCowboy.com is a great source for free credit reports, free credit scores, fico scores, identity theft software, and free information on how to repair your credit for free.
Thus, if you're paying high interest on a credit card debt and are offered a new card or a balance transfer to an existing card at a much lower rate, moving the balance can be a good idea.
Say you owe $5,000 at 15% and could transfer that balance to a different card at 6% - you're paying $62.50 per month interest on the present card and would only be paying $25 per month after the transfer. In other words, if you maintained the same payment, your debt would be reduced by an additional $37.50 per month. It doesn't sound like a lot, but in a year's time that's $450 – almost a tenth of your original balance.
This, then, is something you should consider. But before you make the decision, check out the details. Some companies charge a set rate for the transfer – it could be a percentage or a flat rate. Say $75. So you need to do the math and determine how much interest you'll save in comparison to the cost of the transfer.
Next, you need to be sure that the lower interest rate isn't going to go away in 3 or 6 months and put you into a rate even higher than you were paying before. Try to find a card with a lower rate that's fixed until the balance is paid off.
Lastly, you need to be careful not to "max out" any one card. Ideally, no one card should carry a balance over 30% of what's available to you. So resist the temptation to take the balances from all your cards and use all available funds on one with a low interest rate. Even though your other cards might then show a zero balance, having one card at the limit will reduce your credit score.
If you do decide to transfer a balance – or more than one – do discipline yourself to keep making the same payment you made before the transfer. That's the path to reducing your debt, raising your credit score, and finally removing the burden of debt from your shoulders.
Every time you make a payment, look at the amount of interest you're paying. That's money you could be spending on something that will benefit you or your loved ones, so make it your goal to start keeping that money in your own pocket just as soon as possible.
About the author: John Rasor is the owner of http://www.creditscorecowboy.com/. And a 20 year veteran of the mortgage and real estate business. CreditScoreCowboy.com is a great source for free credit reports, free credit scores, fico scores, identity theft software, and free information on how to repair your credit for free.
Labels: credit cards
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