Are you struggling to pay an outstanding debt? Does a new credit card sound like it would be a good idea for you right now?
It may be that you owe varying amounts on store and credit cards, or just that you have one large outstanding balance on such a card. If so a balance transfer, to a new credit card may save you money, but will it really benefit your finances in the long run?
Firstly assess your debt and credit card needs
Work out your budget as honestly as possible. Make sure that you inlcude all incomings and outgoings in order to have an accurate financial picture.
Shopping around for a new credit card will show you that, despite the credit crunch, there are still some good offers available. Comparing credit cards is easier than ever before, with the Internet providing valuable information, at simply the press of a button. However, some credit card comparison sites have a vested interest in promoting one card over another, so use a good cross section. Remember also that not all of these offers will be as good as they initially appear to be.
The devil's in the detail.
Most of us fail to read the small print in documents, such as credit agreements. With so many deals having twists and turns it is vital that you read and understand your agreement. In order to make sure that your new credit card is appropriate for your needs, you must comprehend every last piece of information available.
Some credit cards offer a great deal if :
-you are only going to transfer a balance.
-you are sure that you can clear this balance before any credit charges become due.
-you have fully worked out the costs.
-you are positive that you will always make, at least, the minimum payment agreed, and on time.
Interest free balance transfers.
Although balance transfers may be interest free, make sure that this interest free period of time is sufficient for you to clear your debt. If it is not, then you may need to be looking for another transfer deal a few months down the road. Bear in mind that, a few months along, good deals may be thin on the ground.
Work out exactly what your interest payments would have been, on your old card or cards before you transfer your credit card. Compare this figure with an accurate balance transfer fee to show whether the swap is good value, or not. Consider also that, if you constantly swap credit card providers, it could have a detrimental effect on your credit score.
Key points to consider.
Ensure that you know:
-the exact balance transfer rate.
-how long the interest free period will last.
-any penalties. For example, a payment made just one day late could attract a fee and the loss of your interest free status. The late payment fee could also count against you on a credit report.
-the usual interest rate.
-the rate of interest on purchases. Sometimes the interest free period will apply to both purchases and balance transfers, but not be straightforward. The interest charges applied to your purchases may apply sooner than those on the balance transfer.
Here is an example:-
A balance transfer of 1,000 pound with 0% interest charged for nine months.
Purchases totaling 1,000 pound with 0% interest for the first three months.
The snag here is that your payments will more than likely only go toward paying the balance transfer until this debt is cleared. This can mean that, in no time at all, your debt will be snowballing again.
Sensible use of your new card.
Sensible use of your new and old cards is important, unless you want to end up lining the credit card provider's pocket with your money.
When applying for a new card make sure that:
-you get the best deal available.
-you know exactly what any costs are and what you are going to use your new and old cards for.
-you know your budget.
If your debt has got out of control you will know just how hard it is to clear such debts. Hefty charges can mean that it may take a lifetime to clear a relatively small debt. A new card is a new beginning but only if you act wisely.
Only use your new card for the initial balance transfers. Transfer any debts within the specified period of time, in order to attract the interest free offer.
Assess your old credit cards, so that you know which one offers the best value. Keep this one for emergencies and destroy all others. This way you will have one card for any urgent spending and, hopefully, be able to control your debt.
Of course it does all boil down to your lifestyle, finances and attitude toward spending. If money is tight do not purchase without thinking it through.
Instead consider whether:
-you really need the product.
-the price is good.
It does not matter what a bargain the product seems to be if you do not really need, or want, it, and, if the interest charges will swell its cost out of all proportion.
Examples of the best credit cards.
The best two credit card deals, at present, seem to offer good deals on credit card balance transfers, with an interest free period of around 15 months and a fee of 3%. One of these cards though is only available for those who can manage their account on-line.
The interest free offer is only available on purchases for around 3 to 6 months. So, if you buy something with your new card, you could soon be well out of pocket. The typical APR for these cards is around 16.5%, which compares well to other providers, but this rate is variable. After the initial offers have expired it would be as well to "watch this space". Do not become complacent and, if you think that your credit card is no longer the one for you, start comparing new deals on offer.
Less recommended on-line, but offering a better deal overall is a Platinum credit card, with balance transfer option. This card offers 0% interest for 12 months, a balance transfer fee of 3%, typical APR of 12.4% plus an interest free period on purchases of 3 months.
Sounds good, doesn't it? However the catch here is that applicants must have a regular income over 20,000 pound. This shows just how important it is to check the small print before choosing your card.
These examples illustrate the point that, you must look at every aspect of a credit card, in order to work out its relevance to you, and whether or not it is good value.
There are still great credit cards deals out there but, take your time, assess the deal, work out your requirements and be flexible in your approach. This way the offer should work for you. Remember balance transfer credit cards are not suitable for everyone.