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(Today’s post is a guest post from Miranda Marquit of DestroyDebt.com.)
Credit card debt can often seem overwhelming. Indeed, by the time your interest charges are deducted from your payment every month, there is very little left over to be applied to the principal — especially if all you pay is the minimum. Even when you put a little extra toward your credit cards, the balances seem to fall with depressing slowness.
This is why the 0% credit card is so enticing as a method of debt consolidation. You transfer your other balances to a 0% rate, and often there is a special "balance transfer" rate that takes effect after the 0% introductory rate is over (usually anytime between six and 18 months after you get it). It’s amazing to watch how much faster your credit card balances dwindle when you aren’t paying interest. But you do need to be careful. Without the proper approach, you can actually end up in worse shape by getting another credit card, even if it does have a 0% APR.
Things to watch out for with a 0% APR credit card
One of the first things to realize is that the introductory rate is only good if your account remains in "good standing." If you make a late payment, fail to pay the entire minimum or go over the limit, most credit card companies will immediately revoke your 0% rate. Instead, you will automatically be bumped to the "default" rate, usually somewhere between 18.99% and 24.99%. Make another mistake, and you could see your interest rate soar even higher to 29.99% or even 31.99%. This can make paying off the balance exceptionally difficult.
Another common pitfall is to start using your other credit cards again, without paying off the balance each month, once you complete the balance transfer. Wracking up more debt before the original debt is paid off can put you in an even more devastating position than you were in before. In order for debt consolidation to work effectively in terms of getting rid of your credit card debt, you need to change your habits. No amount of debt consolidation will work if you haven’t begun making serious changes in your lifestyle.
Here are some tips to help you as you work toward getting out of debt:
- Make a budget and stick to it.
- Concentrate on one debt at a time. Pay it off (while still paying other minimums) and then move on to the next debt.
- Live within your means.
- If you continue to use credit cards, pay off new charges in full each month.
- Impose a waiting period on large credit card (or any) purchases to test if you really need it.
- Stick to it! Set goals and give yourself small rewards when you reach them.
It is possible to get rid of your credit card debt. But whatever method you choose, be sure to carefully consider your options and make sure that you change your habits so that you can stay out of debt.
Miranda Marquit edits information on debt consolidation for DestroyDebt.com and writes on personal finances for YieldingWealth.com.
June 18th, 2008 at 1:29 pm
Yes, be very wary about making new purchases and carrying balances while doing a zero percent balance transfer. Sure, the balance is at zero percent, but often, new purchases come at a different APR. And be sure to keep track of when your teaser date ends — some standard rates don’t kick in until a year, but for some, it is only three to six months.
Emily @ Taking Charges last blog post..Obama may reform McCain’s credit card rate
June 18th, 2008 at 1:41 pm
“Another common pitfall is to start using your other credit cards again, without paying off the balance each month, once you complete the balance transfer. Wracking up more debt before the original debt is paid off can put you in an even more devastating position than you were in before.”
This is exactly what happened with me and my husband before we implemented the “freezer” method. We went from not-so-bad debt to ridiculous/scary/stressed-out debt really fast. To change our habit, we literally froze the credit cards in ice so that we couldn’t rack up more debt on the cards that we transferred balances from.
June 21st, 2008 at 5:58 am
Credit card debt is on its all time high with today’s economy. Hopefully people can obtain the help they need to get out of debt. Thanks for the article!
June 24th, 2008 at 2:49 pm
I played the 0% swap game and even put my whole car purchase on a few cards. It was a lot easier about 2 years ago than it is now. Since all the card companies are charging those balalance tran fees, it really eliminate the advantage of using them.