How to Get Out of Credit Card Debt in 2009 – Part 2 Balance Transfer Basics

Last time, we walked you through a possibly painful reality check, as you sat down and faced your debt demons. You found out how much credit card debt you owe, to the cent, and which card(s) you owned that are the most damaging to your wallet. Now, you’re ready for the good stuff.

Today, you’ll learn how you can reach your goal of getting out of debt in 2009.

Balance Transfer—Your Ally in 2009
Depending on your credit score, credit card companies are probably sending you applications for you to sign up with them, offering a low introductory interest rate on balance transfers. A balance transfer allows you to move your debt to a new credit card with a lower interest rate (or no interest rate) for a specific amount of time. Basically, you are charging your entire credit card debt to a new card. Now you only owe the new credit card company money.

This is a great opportunity for you to use credit cards to your advantage. Ideally, you want to find a credit card with a 0% balance transfer rate that lasts for 12 months. This means you’ll have a year to pay off your debt, interest free.

If your credit score is low, you might have a hard time finding a 0% rate or you’ll only have 6 months with the low rate. Just find the best deal you can. There are a few sites on the Web that search for the best deals offered by credit card companies. Here are a few:

www.bargaineering.com

www.moneybluebook.com

www.find-cards-now.com

http://www.creditcards.com

www.bankrate.com

There are a few things to note about transferring balances:

1.) This 0% or low interest rate only applies to your old debt, so if you transfer your old debt and start charging new expenses on the new card, you’ll be charged a regular interest rate that could be as high as 19%, which means you’re screwing yourself again! So, just make sure you are aware that this new card is for you to use to pay down your old debt. It’s not a new card for you to go to town with.

2.) You will be charged a transfer fee by the new credit card company, which could be around 3% of your old balance. But, if you do the math, it’s worth it to eat this cost. Ex. If you have $10,000 in old debt, that fee adds up to only $300 extra spread out over a year ($25 a month). Compare that to about $200 in interest rates per month, and it’s a steal.

3.) This transfer fee will be added to your new credit card bill as a new expense, which means that the regular interest rate will be charged to this new amount. No reason to panic, but all the more reason you should just work on paying off your debt as quickly and diligently as you can.

4.) After your time is up, your interest rates go up. So, if 12 months go by and you haven’t completely paid off your debt, you’ll be charged a regular interest rate on the remaining balance on the card. Again, all the more reason to stay on course and pay down your debt as soon as possible.

Transferring your debt to a new card is your #1 ally in getting out of debt. But you have to be smart about it and make a proper payment every month. We’ll talk more about working out payments in the next segment. Stay tuned.