35 How to eliminate debt by using balance transfer credit cards
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Ok so heres the deal. A LOT of people find themselves in a situation where they need to pay off debt fast and they want to do it the cheapest way possible.
The thing is, it’s going to come down to not continuing to increase the debt, reduce the interest rate that you have to pay which is going to allow you to reduce the principle of the debt as quickly as humanly possible.
Let’s first talk about why its critical to cut the interest rate on your current debt- nearly half, 47% to be exact, carry credit card debt from month to month. That means you do not pay off the entire balance of your credit card every month and you carry a balance to the next month.
When you kdo this, that balance that you carry to the next month is the amount you will start to pay the astronomical interest rate on.
Now, on average in the United States, Americans carry a credit card balance of $6, 194…and that’s according to Experian.
Now, with the average credit card interest rate of 17.98% and an average balance of over $6,000, you can see why this topic is heavy on a lot of peoples minds…
Let’s just do some quick math on the average credit card situation.
If you have a balance of $6,194 with an interest rate of 17.98% and pay $200 a month toward the card, it would take you 42 months or 3.5 years to pay off the card and you would pay a total of $2,193 in interest alone.
This is a prime example of why credit cards are so dangerous and I personally think the best option is just to steer clear of credit cards if you think you are going to carry a balance.
Ok, let’s take a quick 30 second break and when we come back, I am going to go over how you get can out of the credit card anxiety and use balance transfers to assist you in paying off your card quicker and cheaper- don’t go anywhere!
Welcome back everyone! Ok, we just went over WHY its critical to look at decreasing your credit card interest rate because it truly is a vicious cycle and you will end up paying a lot more than you spent on the card in the long run.
When it comes to decreasing your interest rate on your credit card, you really are reducing the amount of money you are obligated to pay out each month. Now that extra amount of savings you are getting can make a difference for your overall financial health and can assist you in buying more groceries, Christmas presents or help you pay off the principle quicker because not as much of your money if going toward the interest payment.
One of the easiest and not as frequently talked about ways you can pay off this credit card debt faster and cheaper is through zero percent balance transfer credit cards.
It might seem counter intuitive to some to use a credit card to help get out of credit card debt but hear me out and I will explain how this works exactly.
Let’s first go over how a balance transfer works exactly on a credit card.
If you are struggling with your overall debt but you still have a decent credit score, using balance transfers is a really good option for you. This is a special type of credit card that offers you no interest for a promotional period if you transfer the balance from an existing credit card to that credit card.
Let me give you an example, Let’s say you have a balance of $1,000 on credit card A with an interest rate of 17%. Credit card B is offering a zero interest rate promotion on balance transfers for the first 12 months on the card.
You would simply open up the 0% card, call in and tell them you want to do a balance transfer. You would then give them the information on credit card A that has the $1,000 balance. Typically the promotional card will charge you a small flat fee to transfer the balance initially to the new card. After that, credit card A (with the high ineterst rate) will be paid off directly from credit card B (with the 0% ineterst rate) and now your credit card balance has a 0% interest rate for the specified amount of time.
Now the key to this strategy is to PAY OFF THE CARD BEFORE THE PROMOTION ENDS.
Credit card companies offer this type of promotion because they rely on the fact that most people will continue to spend and incur more debt instead of using this opportunity to get out of debt.
This is a fantastic strategy but you have to be dedicated and focused when it comes to paying off your debt so you can actually get ahead and not fall further behind.
Something to note with the strategy as well is that this typically works to not just pay off existing high interest credit cards but it usually works to pay off unsecured loans as well.
With less interest being paid every month, you will be able to tackle that principle quicker and you will be able to stop relying on using your credit cards, you can save for emergencies and help yourself become more financially secure.
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Until next time!