Debt Consolidation
If you find that you cannot afford to repay the outstanding balance on your credit card, consolidating your debt may help. If you are incurring large interest charges each month, you should consider moving your debt to a zero percent balance transfer credit card. This is often the first step to reducing your debt: you prevent the debt escalating further and pay off the debt rather than the ever-increasing interest charges.
Balance Transfer
A balance transfer occurs when one credit card pays off the debts on another; the outstanding balance is effectively moved from one card to the other. Transferring the debt makes sense when you move the outstanding balance from a high interest rate card to a card with a lower rate. Balance transfer is easy to do and there are often zero percent interest rate deals available for new customers.
When you apply for a new credit card, you will typically be given the chance to instruct a balance transfer; you need simply give details of your other cards and, if your application is successful, the new card will pay off your outstanding balance(s). Even if you do not instruct the balance transfer when you apply for the new card, you are usually given a period within which you can make a balance transfer; typically between thirty and ninety days of receiving the card. Simply contact your credit card provider by telephone and inform them of the card details from which you wish to transfer the balance. If the new card does not offer a credit limit large enough to transfer the total balance, you should move as much as you can to the new card and then pay off the outstanding debts on the old card first, since interest will still be charged on this debt.
You should remember that although the interest rate is lower, (or non-existent for a promotional period) you will not necessarily be able to pay off less each month. Your new card may have a larger minimum monthly repayment: consider any extra costs involved before switching and decide whether your financial situation enables you to cover these costs. The interest rate is essentially the cost of borrowing; if you borrow £1,500 at 18 % per annum, the cost per year is £270, and you will owe £1,770 after one year. If you transfer the £1,500 balance to a zero percent interest card, it would not cost you anything to borrow this amount, and as such any repayment you make would go towards reducing the actual debt, rather than paying the interest charges.
You should still aim to pay off as much of your debt as possible when you have transferred the balance. Even if there are no interest charges to pay, the debt is still there and you must be repaid. The more that you repay within the interest-free period, the more quickly your debt will be cleared. Even if you are required to pay off more money each month, your debt will be cleared and the total cost to you will be lower, thanks to the reduced or none existent interest charge.
