Credit cards are useful, but potentially dangerous financial instruments. When used correctly, they offer security, benefits, and rewards that make them a vastly superior payment to cash, checks or debit cards. However, when using credit cards to incur revolving debt, there can be expensive drawbacks.

The Dangers of Carrying Credit Card Balances

Unlike a loan for a fixed amount, credit cards are revolving charge accounts. This means that borrowers can continue to incur additional debt each month, even as they make payments on their existing balances. For consumers, this is a hazardous aspect of a powerful financial instrument. Too often, cardholders make purchases without regards to their ability to pay for them, and must therefore carry a balance.

As time passes, this practice becomes a habit as they incur more debt at a rate faster than they are paying off their existing balances. Using 0% balance transfer credit cards can take the sting out of interest expenses, but oftentimes, consumers fail to use these low rate cards until they reach a point where their ability to make their minimum monthly payment becomes difficult or their credit limits are nearly exhausted. Continue Reading »

Balance transfer credit cards can be a great tool to help manage out of control credit card debt. Good balance transfer cards come with 0% introductory rates that last anywhere from six months (not so great) to 24 months. Before opening a balance transfer credit card however, you should analyze the benefits and disadvantages of doing a balance transfer to make sure it is a good move for you.

Benefits of Balance Transfer Credit Cards

• 0% APR introductory periods. Low start up rates can save you a bundle of money over the interest you are likely paying currently. Going from a 15% interest rate to a 0% rate will sharply reduce your yearly interest expenses.
• A tool to pay off debt. A balance transfer credit card, when used wisely, is a great way to get your credit card debt under control. All of your debt is in one place and with consistent monthly payments you will be on your way to a zero balance. Since your interest rate is 0%, all of your payments will go towards reducing debt, rather than being split between your debt and new interest charges. Continue Reading »

For better or worse, plastic has become the American way to pay for just about everything. After all, using credit cards is a great convenience and with the right card you can even get some fantastic rewards. However, for many people credit cards can lead to financial disaster.  Credit card debt is the easiest type of debt to get into and among the hardest types of debt to shed, as high interest rates and alluringly low payment requirements make it easy for people to wind up in over their heads.

Here are some ideas to help you get out of credit card debt and avoid falling back into debt in the future:

Use Balance Transfers to Reduce Credit Card Debt Costs

If you already have credit card debt, 0% balance transfer offers can play a huge role in helping you to get out of debt. With a 0% balance transfer, you can move your high interest credit card debt to a card that charges no interest for anywhere from six months to a year or longer.

During the course of a 0% balance transfer, you pay no interest on your current debts. This means all of your payments go towards reducing your credit card debt. This will not only save you a good deal of money on interest – sometimes as much as $120 a year for every $1,000 of debt transferred from a card with a 15% interest rate – but it will also help you get out of debt sooner, since money you would otherwise be wasting on interest payments will instead be used to reduce your credit card debt.

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The most generous credit cards currently available to consumers carrying credit card debt offer 0% interest rates on balance transfers for 21 months. If you’re unfamiliar with balance transfers, this may not seem like a big deal. However, these are the longest 0% balance transfer offers that have been available in at least six years and present a tremendous opportunity to save money on interest and get out of credit card debt faster.

Normally, credit card companies offer 0% rates for about 12 months. At the height of the credit crunch, some companies reduced these deals to as little as 6 months. During 2010, the length of balance transfer offers increased substantially. First, there were 0% for 15 month offers. Then there were 0% for 18 month offers. And while these were good deals, none of these offers stack up to a 0% APR for 21 months.

What Can You Save with a 21 Month 0% Balance Transfer

Let’s say you have $3,000 of credit card debt with an average interest rate of 15%. If you only make minimum payments, during the next 21 months you will waste $510 on interest charges and still have $2,252 in credit card debt. On the other hand, if you transfer your balances to a card that offers a 0% APR for 21 months, you will only owe $1,832 when the 0% period expires. After paying a $90 balance transfer fee, you’ll end up $420 richer and $420 closer to getting out of credit card debt. Continue Reading »

At first glance the title above may seem odd. Everyone knows making the minimum credit card payment is going to keep you in debt for years. Everyone knows that because of high interest charges you’ll spend twice as much for the stuff you purchased if you pay only the minimums. In fact, because of the newly enacted U.S. credit card law, the details of your payment terms and number of payments required are plastered all over your statement. It’s hard to miss this fact. Still, believe it or not, there are situations where it might be advantageous, if only for a little while, to only pay the minimum on your credit card balance. Here are a few examples:

You Lost Your Job

If you are like the 10% of Americans who are out of work, then you probably should focus on other financial goals prior to paying aggressively on your excessive credit card debt. Even if you recently lost your job and expect to find a job quickly, don’t be so quick to tackle your debts like you have a guaranteed paycheck. It’s tough out there. Keep your cash and use it to ensure you can make your mortgage payment, electricity payment, and put food on the table. The unsecured lenders (e.g. credit card companies) can wait in the back of the line. Believe me, they are probably happy to only get the minimum. Continue Reading »

While balance transfers have saved the day for many people struggling with high interest credit card debt, they aren’t always a viable option. This is particularly true for people with extremely high credit card debt relative to their income and those whose credit scores have fallen below the range considered good.

A visitor wrote in last week with a perfect example of when non-profit credit counseling is not only a better option than balance transfers, but the only realistic option. The visitor had recently discovered that her retired father’s minimum credit card payments on over $20,000 of debt at mid teen and higher interest rates was consuming 50% of his income. This is not sustainable.

She wanted to know if her father would qualify for a 0% APR balance transfer. My response was this: even if he could, it would make little difference. First off, his debt to income ratio was likely so high that even if he could get approved for a credit card, he would only get a very small credit line. More importantly, however, balance transfers generally won’t reduce minimum payments at first and will do so only gradually as credit card debt is repaid. Continue Reading »

Do you have significant credit card debt? If you’re like most Americans, you do. Even if you seem to have your payments under control, do you know how much you’re really paying in interest? Over the life of your credit card debt, interest can accrue at incredible rates and influence your savings more than you could ever imagine. Read on to learn how to stop high interest from impacting your savings and affecting your wealth.

With the average interest rate on credit cards now at about 15% (and it’s on the rise), it is no wonder that so many people are falling behind on payments and finding themselves drowning in a sea of debt. One reason this debt has gotten so bad in America (one in three households now carries credit card debt of more than $10,000), is a lack of education concerning interest rates and how high interest can impact savings.

 For instance, a credit card holder with a debt of $10,000 and a 15% interest rate who pays a minimum payment of $300 per month toward the debt will take almost 4 years to pay off the total amount, and will pay $3,200 in interest on the original debt of $10,000.

A credit card holder with a debt of $7,000 and a 21% interest rate who pays a minimum payment of $150 per month toward the debt will take more than 8 years to pay off the total amount, and they will spend a total of $14,550 to pay off the debt – that’s more than twice the original debt of $7,000! Continue Reading »