Eliminate Debt With a Credit Card? HUH?

We have all read the advice that in order to reduce our debt is to cut credit cards out of our lives. While it is true if you are trying to get out of debt, it is wise to stop spending but that doesn’t mean you have to nix your plastic all-together. In fact, credit cards can be an effective tool for helping you eliminate your debt and get back on the right financial track.

So how does that work?

Well, the credit card industry introduced what was once simply a promotional offer known as the 0% APR credit card. This marketing ploy is now one of the more traditional features of many credit card companies. A 0% APR credit card is a big change from the days of old when most credit card account holders paid a standard annual percentage rate of about 18%. Now, credit card companies have found success with and are more capable of offering different interest rates to consumers, depending on their own credit histories.

Limited Time Offers

Today credit card companies will typically all offer some type of reduced APR incentive, if only for a limited time. It is the 0% APR credit cards that are the most sought after; particularly those that extend the zero rate for an entire year or more. Because there is no interest accruing for whatever time limits you have, consumers can take advantage of the situation and transfer balances from higher rate cards in order to pay off the debt faster. It will not only help you reduce your debt but it can also help you save some big time money.

Transferring balances can be a way to ease debt if you qualify for a 0% APR card. However, it is important to note that some cards offering balance transfer deals may also take you for a ride with excessive fees for the transaction. The only way to avoid this mess is to very carefully and thoroughly read the terms and conditions of each credit card before you apply. It is also important to note that if you do not take particular care to make all of your monthly payments on time, you can not only lose your 0% rate, you will likely incur a dramatically higher rate that will only drag you into further debt.

For Those Who Qualify

Those with excellent credit histories will probably get first dibs on the good credit card offers but if your credit is in order or if you can do some leg work to repair your credit, you might find that a 0% APR credit card to be an effective tool in reducing your other debt. If you make your payments and a commitment to stop making new purchases above and beyond the balance transfers, you can make the credit card truly work for you.

When you are seeking a card with a 0% APR for balance transfers you will also need to make sure the rest of the card will work for you in other ways. For instance, make sure you know what happens when that 0% offer runs out of time. Will the interest rate after the incentive period be way higher than you can afford? Also consider what will happen if you are unable to pay off the entire balance transfer in full before the limited time offer expires. There is a lot to consider when choosing to use a credit card to reduce your debts. Take time to understand how to make the credit card work for you and your finances in every aspect.

This entry was posted on Thursday, December 18th, 2008 at 5:33 am and is filed under Debt & Consolidation, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.