Transferring debts is dangerous if you get trapped in it

Transferring debts is dangerous if you get trapped in it

Posted by: consolidatecreditcard_admin on

Credit card balance transfer has become a quite common debt relief option among all the modest debtors of our country.

People started to understand the efficacy of transferring debts from one account to another, long before credit cards came in fashion. Back then, personal loans and payday loans dominated the scene.
So, what people used to do was borrow money from Mr. A to pay off Mr.X, Y, and Z.
And then, slowly pay off Mr. A, over time.

The same thing is about credit card balance transfer.
You take out a new card, and bring all the balances from your existing credit cards into this new card.
Once the transfer is successfully done, you will have only one card to pay off, and enjoy a median interest rate against all your credit cards.
But, it can be dangerous. Balance transfer is no joke, and banks encourage you to do so, as they see a big profit margin in it.
You just might get entangled in this transfer chain forever, if you don’t know how to make it a ‘once and for all’ affair.

Here’s how you might never exit the balance transfer chain:

Banks and financial institutions promote balance transfer to gain money from you. It’s not that they totally want you to become debt free.
When you take out a balance transfer card to pay off your other cards, you are actually letting the new bank have a new income trail.
Most of the banks charge a balance transfer fee.
And, generally debtors opt for this method, when they have too much of debts to pay off.
So, chances are, majority of the debtors doing the transfer, won’t be able to pay off this new card too.
Even if you do manage to pay off this new card, it won’t be anytime soon, and definitely not within the flashing 0% interest rate introductory period.
This 0% APR introductory phase is a big time marketing strategy, that the banks use to sell balance transfer cards.
They know very well that people will get false hopes to pay off their due balances at a 0% interest rate.
Now, just imagine if you, by any chance, are unable to pay off this new card within the introductory period!!
There are high probabilities that this card will be facing a brand new hiked up interest charge over a big outstanding balance!

You might say, you can again transfer this balance to a new card. But how long, will you go on like this?
Plus, what guarantees are there that you won’t be using your old credit cards again, within this transfer period??
Ultimately, you are getting trapped and might never just escape this whole jeopardy, that the big financial institutions lay down for us.
Even if you say, that you will close your old credit cards after you have transferred the balance, then also you will be making another grave mistake.

Closing your old credit accounts is not a good move for your credit health:

The moment you close your old credit cards, your credit history that you have built up till date, gets wiped away. At least something of that sort.
And, once it gets cleared, you have to build your credit history all over again. Now, this takes time!
A washed away credit history will have a huge impact on your credit score. It’s not impossible to see some 200 points drop at times, if all you were having till date are credit cards in your name.
A diminished credit report and a burnt out credit score is a serious condition. You won’t be qualifying for good loans or other credit cards so seamlessly, again!

A well done balance transfer however, still has the power to save you from debts.
But, for that you need proper help and guidance! Consult a lawyer, or someone whom you can trust, that who is in the finance industry.
Don’t get induced by the exciting balance transfer offers you see everywhere.
I would still say it’s better to avoid balance transfer if possible, rather deal with your existing credit cards tactfully.
At times, it’s far better to stick onto what you’ve got, than losing yourself completely in the search of something that has no guarantee of becoming yours.

Does paying off credit card debt with a personal loan makes sense?

Does paying off credit card debt with a personal loan makes sense?

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You’ll not find too many instances when taking out more unsecured debt to pay off another unsecured debt like a credit card bills makes sense. But, if you use a personal loan to pay off your credit card debt, you might be saving more on the interest. The debt is still there, but the interest you are paying currently can be reduced.
Too much credit card debt often creates serious financial problems. In fact, owing more on credit card bills than what you can actually afford in a month is quite troublesome and a waste of money. That’s not all, your outstanding credit card bills would hurt your wallet as well as your credit scores.
Practically, you should always pay off the full credit card bills every month. But, if you can’t afford to pay off the huge debt at once, there are still some smart ways to tackle your credit card dues.
Consolidating your credit card debt with a personal loan is one of the smartest ways you can ever find. These are the two valid reasons:

1. It might be cheaper

Interest rates payable on credit cards are typically quite high. Credit cards which we normally use in general like American Express, Discover, MasterCard, Visa, etc. have interest rates to rise well over 15%, even for consumers with a good credit score.
If you compare the interest rate of a personal loan with a credit card interest rate, you’ll find the earlier one is quite low and affordable. With a decent credit score, the lender may offer you a better interest rate compared to the market rate.

2. It’s a guaranteed option to improve credit score

Personal loans are also treated as unsecured installment loans. They are quite different from revolving credit accounts like credit cards. So, when you take out a personal loan, your credit score doesn’t get the negative impact in the same way as it would get when you incur a credit card debt.
Practically, if you are paying off your multiple credit card bills with an installment loan like the personal loan, your credit utilization ratio will be zero, and your credit score will likely increase to a decent mark. But for that, you should keep yourself regular on your new personal loan.

Using a personal loan to consolidate credit cards

Taking out a personal loan to pay off credit cards is also called a credit card consolidation loan.
The objective is to get a personal loan with a lower interest rate compared to the interest you are paying on your credit card. Apart from that, setting up a new, easy repayment period is also a motive.
For example, let’s say you have 5 credit cards and a total balance of $9,000. The interest rate is 18.00%. If you are taking out a three-year personal loan with 12.00% APR, your monthly payment would be lower and the total interest over the life of the loan will also be affordable.
In other words, you’d save a good amount of money by opting for a credit card consolidation loan.

Benefits of paying off credit card debt with a personal loan

1. You can lower your interest rates

Taking out a personal loan to consolidate your credit cards can lower the annual interest rate of your credit debts. Paying a lower interest rate may allow you to lower the cost of your debts, and pay off more principal each month, so that you may get out of debt faster.

2. You can get rid of your multiple monthly payments

You can consolidate your multiple cards through one personal loan and reduce multiple payments in a month. Once you start making only one loan payment, it’ll allow you to focus all of your time and resources into that one payment. It will be easier for you to pay off one loan instead of making multiple payments to several smaller credit cards.
Of course, you must also keep in mind that you should avoid making more credit card balances after consolidating your credit cards. Remember, you have an existing loan to pay off. If you still lose focus on your large debt and start accumulating new credit card debts again, I am afraid you’ll be falling into bigger debt problems soon.
Do you have a bad habit called overspending? Do you often exceed your monthly budget? You need to work on these aspects in order to get out of debt.

3. You can reduce your monthly payments

Using a personal loan to consolidate your debts can also lower your total monthly payments for the debts you owe. If you calculate the total amount you are paying each month as the minimum payment of your existing credit cards, you’ll notice that the monthly payment for your one personal loan will be much lower, compared to that amount…..
Lowering your monthly payments can help you invest more money towards debt payment. Using a debt snowball method you can not only tackle your credit cards, but can also manage your other debts easily and faster.
For example, if you pay $700 in total per month towards minimum payments to the credit cards, and now paying only $500 per month on your new personal loan, you can easily apply the extra $200 directly to pay off other debts. This strategy will help you get out of debt faster.

Conclusion

It is probably not a good idea to restructure your debts through a personal loan, either by cutting down your monthly payments or lowering your interest rate. Make moving your debt around worthwhile to you. Insist on a lower interest rate and a reduced monthly payment for your debt, so that you can pay off your debt faster and take back control over your finances.
If you want more help in your loan repayment process, consider seeking a consultation with a trusted financial expert.

Credit cards can never define your buying power

Credit cards can never define your buying power

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As the necessities of life are getting dearer, an increasingly large number of people in America are resorting to credit cards for their daily needs. Due to the impact of poor employment and low salary, a large number of people are not having enough cash with which they can make ends meet. Thus, they are using their credit cards to meet daily necessities.

Most people are paying their rent, utility bills, and food costs with the help of their credit cards. Though they’re getting an immediate relief, they’re gradually being caught in the vicious trap of consumer credit card debt. Even worse, if they are even late with their payments by a day, they’re subject to an outrageously high-interest rate.

Credit cards are now becoming popular for some important features. People can avoid cyber scam by using credit cards instead of debit cards. In addition to this, people are now more comfortable in doing online transactions instead of carrying cash.

Also, some attractive offers and rewards are attracting people to keep various credit cards.

For example,

People are now getting a travel card, store card, gas card, and many more. They want to get discounts and earn miles, or points by using their cards.

It seems credit cards are the perfect tools for modern people’s life in an advanced country like America.

But what is not right is the rising credit card debt that our Nation owes.

Yes, according to the Federal Reserve, America owes $1.058 trillion in total consumer credit card debt in 128 million U.S. households.

Unfortunately, the average U.S. household has $8,292 credit card debt. And, an individual who is carrying a credit card has $5,839 debt.

In short, people are not managing their credit cards properly. They forget about the basic rule of managing a credit card.

If you analyze the reason behind this high credit card debt in our nation, you will understand that credit cards are becoming powerful tools for people. They are using the power to get everything that they want. They are constantly applying for new credit cards but they don’t know how to manage them.

Credit cards: The truth of using these powerful tools

People who are under 21 years can apply for credit cards now. Though, they have to show independent income or assets to get the approval. The credit card company allows a credit limit while giving the card to the person, which means the maximum outstanding balance you can have on credit card at a given point of time without getting a penalty. This means, credit card company only wants to get assured that the person who is asking for a credit card can pay the credit card bills.

But, while using this tool, people are becoming more spendthrift as they consider it as free money. Using a credit card, you are not supposed to pay the bill while buying an item. Just swipe the card and get the item.

People simply forget the fact that they are supposed to pay the bills in full and within time. Even making the minimum payment is not sufficient.

With the present debt situation in the US and the number of debt delinquents, it’s no wonder that the credit card issuers are all skittish about the rising number of risky borrowers.

As the employment rate declines to add fuel to the fire, the credit card issuers are all trying their best to limit their risk exposure.

10 Rules of managing credit cards properly to avoid debt

It is clear that U.S. consumers are in huge credit card debt as they fail to follow the credit card rules.
But, knowing the rules can help you to stay away from the debt. You can also build a good credit score by managing your credit cards properly.
Here you go:

1. Pay your balance every month

Remember, getting a card is not enough, you should pay the bills in full and within time. Carrying balance to the next month only increases interest.
Pay the bills in full so that you don’t accumulate interest rates and reach a huge amount in the future.

2. Avoid paying just the minimum payment

Making only the minimum payment on your credit card is not enough. The longer you’ll make just the minimum payments, the more money you’ll accumulate in the form of interest rates.

3. Try to understand the terms of the credit

You need to read the terms and conditions of a credit card while taking out a credit card. Know the interest rates, the payment schedule, and the fees on the card. It helps to avoid being subject to sudden late fees and penalties that can unnecessarily increase your monthly payments.

4. Don’t use credit cards beyond your affordability

Remember your credit cards just make your life easier but if you use them randomly, you can fall into financial trouble. Because the amount that you charge on your credit card needs to be paid back in full. If you don’t do that, you will be in debt soon. Thus, you shouldn’t buy items using a credit card that you can’t afford in cash.

5. Remember your due dates

Keep track of the due dates so that you don’t miss a single payment. Most credit card companies charge fees for even a late payment. Set reminders to avoid being subject to any kind of additional payments that can increase the scheduled monthly payments that you’re already supposed to make.

6. Avoid falling into the bonus and reward traps

Using multiple cards is nothing but luxury and foolishness. Having too many cards just create more opportunities to get on a spending spree. Avoid applying for more cards just to get the rewards and miles. Remember, these are marketing tactics by the credit card companies. They want you to use a credit card for every purchase. But you shouldn’t do this. Using credit card just to get points is foolishness. Remember, nothing comes free; you are actually making forced purchases.

7. Create a spending plan

Everyone needs to create a monetary plan and follow it to let go of their high-interest debts. Without a plan, no one can work towards the goal. You should also have a budget that can assist you in tracking your income, expenses, and monitor your savings. Also, you need to create a spending plan before going out with cards. It will help you to avoid frivolous spending.

8. Put your credit cards on hold

Restrict the usage of the credit cards so that you can stop yourself from accumulating further debt.

9. Pay off high-interest debt first

Debt avalanche method is a wise way of dealing with credit card debts. Target the account with the highest interest rate and direct all your financial resources towards clearing off that debt amount while making the minimum monthly payments on other cards. After you clear off that debt, target the one with the second-highest rate and follow the same method.

10. Avoid carrying cards

If you are addicted to get on a shopping spree, then carry cash instead of credit so that you can at least stop shopping when you exhaust cash. The more you use credit, the more you’ll incur debt and you’ll be bound to repay the money.

Lastly, as America is gradually turning into a cashless country, people should be more knowledgeable about their credit cards. You should also be aware of the federal rules that are continuously being cracked on the credit card companies. Always stay within your affordability so that you don’t need to overstretch your budget and fall into debt.