Getting a new credit card to pay off your old credit card debt might seem like chasing fool’s gold. But a new zero interest credit card can help pay off old debt efficiently. Here is a method that can help you get out of the vicious debt cycle with a little discipline and the desire to help yourself.
How Zero Interest Credit Cards Help
Many major credit card companies offer zero interest credit cards to attract new customers with high debt who want to transfer it to a new account at lower interest rates. This helps the companies to build a portfolio of accounts with paying customers. The customer benefits by transferring high interest debt to new 0% credit cards, and then paying it off in a shorter time frame without having to contend with exorbitant interest costs or fees.
How To Find Zero Interest Credit Cards?
Look for credit card companies offering zero percent interest balance transfer programs and open a credit card account with them. The offers on the cards will vary. Look for companies that offer introductory 0% interest rates for the longest period as this will give you longer to pay your debt.
You should be aware of when the regular interest rates will kick in. Many companies will then charge you much higher rates, which will be detrimental to your debt burden if you haven’t paid off your outstanding balance during the interest-free period.
Once you have opened an account, transfer the outstanding balance to your new card. The amount of debt that can be transferred must be within the credit limit of your new account. Once the transfer is made, you must aggressively pay down as much of your credit card debt as possible during the 0% interest phase. The amount you save by way of lesser interest rates can also go towards paying off the debt.
If you still are left with a considerable amount as unpaid debt on your card, then consider opening another zero interest credit card account and execute another balance transfer to the new company. Repeat the cycle until you are debt-free.
When Should You Open A New Account?
Typically a zero interest credit card offer is only a limited-time marketing gimmick which gives you an opportunity to get out of debt faster. Of course there is a catch. A balance transfer fee is levied when you transfer debt to your new account. The standard fee charged is 3 percent. This varies by company.
Before, plunging in to these 0% balance transfer schemes, it is important to analyze if what you save by way of interest rates on your debt will make up for the 3 percent transfer fee. If you are paying high interest rates on a large credit card debt, then the 3 percent fee is relatively small. But for smaller debt amounts, and when you enjoy low interest rates, this type of transfer does not make sense.
Another point to consider is whether you can pay off your debt within the promotional period. If you have a sizable debt, this may not be possible and your outstanding balance will attract regular interest rates which can be steep.
For people struggling with a large credit card debt burden and high interest rates, zero interest credit cards are a huge opportunity to claw their way out towards financial freedom.
This needs discipline, planning, resources and commitment to pay off the debt in the shortest time possible. Ensure that you are timely and prompt in your payments and do not default on any agreements with the new company.
Laura Ginn advises people to stay away from the impression that there are endless 0 interest credit cards out there. Easy money and easy credit are long dead. That said, if you can find one that meets your needs you will definitely find it beneficial.