One way to reduce debt is to transfer balances from high interest credit cards to those that feature low rates of interest. A March 2010 U.S. Federal Reserve consumer credit report indicated that the average interest rate on credit card debt was 14.31 percent. This makes the credit card one of the most expensive ways for people to borrow money. Transferring debt from high interest to low or no interest cards can help an individual become debt-free.
Some credit card companies offer special deals to new customers, including balance transfers with attractive interest rates. After the consumer is approved for the new credit card account, he or she can transfer the existing balances from other credit cards to this new account. The lower interest rate on the new account usually lasts for a specified time such as six months. This enables the debtor to be subject to a lower rate of interest while paying off the balance.
There is sometimes a fee for transferring credit card balances, so consumers should research whether the lower interest rate offered by the card more than offsets any balance transfer fees. Such fees are usually added to the balance, resulting in an increase in short term debt. If the fee is less than what will be saved in interest payments, the consumer should transfer the balance and begin paying off the debt.
Consumers should shop around to find the credit cards with the lowest transfer balance interest rates and most favorable account terms. Zero interest cards can be found but they may only be offered to those with the best credit scores. If the individual can do anything to improve the credit score within a short period, this is recommended. This will increase the chances the person will be approved for the zero interest credit card.
Once the new card is obtained, the account holder will need to complete some forms containing information regarding the existing lenders. These lenders will be contacted by the new credit card company and the balance transfer process will usually be completed within 30 days. Customers will receive a letter of notification when the transfer process is complete. This letter should be retained because it usually contains details regarding duration of the lower interest rate period.
If a person is unable to pay off the debt before the lower interest rate period has expired, he or she will then be faced with the higher rates of interest. There is no law against seeking another low or no interest card and transferring the remaining balance. The fact that many people do this, though, is what has led card companies to charge balance transfer fees.
People who are faced with credit card debt on accounts with high interest rates should consider transferring the balances to lower interest rate cards. Doing so will save these individuals money in interest payments. This money can instead be used to pay down the principal balance of the debt, enabling individuals to become debt-free sooner than they initially anticipated.