Own several credit cards? Here's when to say 'yes' to balance transfer

MANILA, Philippines - If you own more than one credit card, or if you’re being offered another one, you have most likely been offered a balance transfer scheme with the promise of attractive interest rates. Most card companies offer balance transfer programs, and market these to attract new customers.

Credit card balance transfers are a good financial tool for lowering your interest rate expenses and for consolidating multiple debts. A credit card balance transfer allows you to move the amount you owe in one credit card account to another credit card company.

For instance, you have an outstanding balance of P30,000 in Credit Card A. If you could not pay the whole amount when it falls due, you will be paying an amount higher than the minimum amount due, let’s say P10,000, and rolling off the balance of P10,000. In so doing, you will be paying an interest on the P20,000 plus the purchases you will be making after that.

In a credit card balance transfer, you can take the whole balance of P30,000 and transfer it to another credit at their balance transfer rate, which is usually lower than the regular interest rate. You will be asked to pay the balance in equal and successive monthly payments, within a time period chosen from the time of your application. The interest for this period is fixed from the beginning.

As you can see, the total amount you will be paying off under the balance transfer scheme can be less than keeping the amount on your credit card if you choose the right terms. It can help ease your cash flow, and allow you to better plan your budget.

Use credit card balance transfers judiciously. When used correctly as part of a financial plan, credit is a smart tool to attain your objectives. But when used whimsically, it can throw your budget out of whack.

A credit card balance transfer is usually not an additional credit line, so it is best to check with your credit card provider if you have concerns about your credit card limit. This facility simply affords you lower interest terms, and fixes your payment period. When availing of it, your object is to improve your cash flow or make your credit card payments more predictable, not expand your credit line.

If you are thinking of availing of the credit card balance transfer feature of your card, here are some notes to remember:

Understand interest rates.

Credit card companies usually offer an add-on rate. Loans with add-on interest are paid in equal installments every month, with principal and interest payments staying constant monthly. Feel free to ask for a computation using the balance you are considering to transfer as well as payment period, say 12 or 24 months.

Look at fees.

Credit card firms typically charge fees for transactions of this nature. Make sure that you perfectly understand the costs involved, not only for making the transfer, but for other issues such as late payment or early repayment. Some card companies may consider waiving the fees to get your business – so you should explore this too.

Pay on time.

Note that if you don’t make your credit card payments on time, there will be additional finance charges. These extra charges may negate the savings you have made in making the balance transfer or worse, make it higher.

Compare and compare.

Scan the market and compare rates. Don’t jump at the first offer you receive. Check out what others have to offer in interest rates and payment fees before making your decision. Make sure you also read the terms and conditions so no surprises down the road.

Be organized.

Sometimes, balance transfers are offered by credit card companies looking for new cardholders. If you sign up with one, that means you will have an additional credit card to maintain. Make sure that you do not confuse your payment schedules with the addition of a new card.

source: www.abs-cbnnews.com

5 Reasons You Should Get Out of Debt

Have you thought about getting out of debt, but find very few reasons to actually do so? After all, getting out of debt would most likely mean selling the majority of your stuff. That doesn’t sound very fun does it? According to my research though, you’ll actually be happier without debt, and just to be thorough, I’ve got five main reasons you should get out of debt.

1) Avoid Those Interest Payments

Let’s use your house as an example. Let’s say you need to take out a $100,000 loan from the bank to make the purchase. If you decide to pay the minimum amount for the full 30 year term, guess how much you would actually pay for that loan? Drumroll……..$240,000!! And that’s with using a fairly low interest rate of 4.6%! What if you could pay that debt down after just a few years rather than 30. You could save yourself over $140,000. That’s a pretty huge savings.

You might not realize it, but this same pheonomenon is happening with your credit cards and car loans as well, but you never think about the long-term impact of these small charges. Let’s assume that you keep a $1,000 balance on your credit card each month. With an average credit interest rate of 15%, your monthly fee on this amount is only $12.50. Seems like peanuts, right? But what if you suddenly couldn’t pay that balance because of a personal emergency? After just six years, that $1,000 will turn into $2,000. Then in another six years it inflates to $4,000. Then $8,000… $16,000… $32,000. See how quickly debt can balloon on you? It’s best to just pay it off and avoid the potential disaster.

2) Increase Your Cash Flow For Investing

There are so many opportunities looming around out there, but many of us never see them because we have absolutely nothing to invest! There might be a real estate deal down the road, a new company that is sure to succeed, or an idea of yours that should be patented and produced, but since you’re in debt, you just continue to go to work and come home each day, barely able to think about anything else because of your lack of money.

Many of us live paycheck to paycheck. If, for whatever reason, one of those paychecks didn’t get deposited into our account, we would be in serious trouble. We wouldn’t be able to make the house payment, the car payment, the student loan payment, or the credit card payment.  What if we didn’t have all of these payments though? Cash would be abundant wouldn’t it? Each month, you would have an excess of about $2,000 to do whatever you pleased. What if you invested it? By investing $2k each month for just three years (and then contributing nothing after that), you would have $3,000,000 in 40 years. Isn’t that amazing! This is why I’m working to get out of debt and start hard-core investing.

3) Improve Your Credit Score

As much as I hate to admit it, our credit scores are important. Not only do you need to have a good score to get a home loan, but this score is also being used to judge your character. Did you know that your credit score might get pulled by your employer before they offer you a job? If they see a low score, they might question your morals or assume that you’re simple irresponsible.

To keep your credit score high, it is best to use your credit sparingly and pay off your balance in full every month. In other words, it’s best to get out of debt and only use credit for everyday purchases.

4) Decrease the Stress In Your Life

Which of these scenarios is more stressful?

    You lose your job, have only $150 in your bank account, and have $150,000 in loans. If you don’t pay, you will then lose your car, your furniture, and house.
    You lose your job, have $15,000 in the bank, and don’t have any debt whatsoever.

I don’t know about you, but I would definitely consider the first option to be the most stressful! The second scenario sounds so stress free that I probably wouldn’t even mind losing my job. I would have plenty of time to find another one, and who knows, maybe it will be an even better job than the one I had before!

5) Buffer Against Disaster

This has been indirectly mentioned in a few of the above reasons, but it is absolutely true isn’t it? If you depend on credit cards and short-term loans for your emergency situations, you are continually in the hole, always trying to dig your way out of disaster. If only the slightest thing goes wrong and you suddenly don’t have another way of borrowing money to cover yourself, you will start to lose some of your possessions. And not only that, but your credit will suffer, which might even inhibit you from renting an apartment. Debt is what makes people homeless. Don’t ever forget that.

source: lifeandmyfinances.com