According to the, as Australians, we have accumulated about $34 billion in credit card debt. Talk about living beyond our means! That equals approximately $4,400 per credit card holder. Credit cards are excellent tools if used correctly, but unfortunately some people tend to dig themselves into a credit card debt hole that can become very difficult to get out of.

Credit card balance transfers can be offered as one possible solution to your problem. The basis is that you transfer the whole of your debt from one credit card provider to another. The new credit card provider will pay out your debt with your old card and give you a new card, usually with a lower interest rate for a honeymoon period.

Sounds pretty good doesn’t it? It also gives you some breathing room to pay down the debt easier, but is this option for you?

How long have you got?

Often the credit card providers offer a 0% or very low interest rate period on the balance transfer for a specific period of time. It may be 6 months or 12 months interest free which can be an amazing time frame to really knuckle down and pay it off without the interest continually accruing.

Assuming you have the discipline, and you create a realistic budget, you may be able to pay down the balance within the interest free period. Just remember to cancel your initial credit card right away.

What happens if you haven’t paid it off after the interest free period?

Make sure you check what the interest rate will change to after the interest free period. This could be a lot higher than the average so it is important to be aware and prepared for this. It is also important to check if there are any hidden fees once the interest kicks back in again.

How much debt do you need to transfer?

A little known fact about balance transfers is that many of the providers will only offer a credit transfer if your new credit card has a higher limit than the one you are getting rid of.

Your new credit provider may offer to transfer 70% of the limit of your new card. So, if you were transferring $5,600 worth of debt, your new card would have a limit of $8,000.

That’s all well and good, but if you have a hard time restricting your spending, then all of a sudden you have an extra $2,400 available to go and spend up big. The credit providers do this because they want you to spend more. The more you spend, the more interest they can charge. If you think you have enough willpower to ignore the extra available on your card, then this shouldn’t be a problem, but remember how you got into this mess in the first place.

What do you do once it is paid off?

Once you have paid off your credit card, you need to consider what to do going forward. For those with spending issues, the first thing to consider is reducing down the balance on your credit card. Credit cards are useful but having $10,000 available to you to spend freely can be a recipe for disaster. Consider reducing it down to $2,000 to $3,000 to ensure that you are ok in an emergency, or to use as a transactional tool.

Depending on your personal situation and spending habbits, this may or may not be a good option for you. Make sure you weigh up the pros and cons before you jump in.

A Professional Post from Cara Brett – Bounce Financial 

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