This will help you to enjoy a period of time without high rates of interest, get your finances in order, and thereby pay off your credit card debt.

How a Balance Transfer Can Help

A balance transfer credit card can be a nice option for those trying to control their credit card debt. With so plenty of balance transfer options available, however, you need to know the best ways of comparing balance transfer credit cards.

What are the balance transfer rates that are available on the card? Some cards offer 0% for three months to six months, other cards offer 2% for an extended time frame, such as nine or twelve months. Then there’s low rate cards which offer a balance transfer rate of interest for the whole life of the transfer.

Balance Transfer Rates

However, not all balance transfer cards are created equal, and there are various things you ought to keep in mind when comparing balance transfer credit cards.

What are the regular credit card rates on the card you are thinking about? When your balance transfer rate expires, this is the rate that you will must pay. Will you be able to pay off your balance in time? If not, is the reversion rate on the card you are thinking about more or less than the rate you already enjoy?

Annual Fees

You ought to also think about how long the balance transfer rate lasts for. Realistically, when will you be able to pay off the whole balance? Try not to receive a balance transfer card that offers the transfer rate for a time frame that is less than the time it will take for you to repay the whole balance.

Reversion Rates

The annual fees on balance transfer cards can range from as low as $40 to $300 & higher. Think carefully about which card is better for you. Some people justify the high annual fees by claiming that they enjoy the reward programme of the card.

Make sure that any additional benefits that your card offers are useful for you, if not, you may be better off choosing a basic card with low annual fees and low rates.

Once you receive a new balance transfer credit card, you will need to pay the annual fees on the card. The fees vary from card to card, but can be as high as $290. Is it worthwhile to pay the high annual fees to enjoy a short period of respite from high rates? You will need to do the math to figure this out.

As you can see, there’s various details that you ought to not overlook when comparing balance transfer credit cards.

Cathy is part of the team that manages Credit Card Finder, a complimentary credit card comparison service and a personal finance blog based in Sydney, Australia. Before she joined ACC, she was a staff nurse at Clark Airbase Hospital and conducted lectures on First Aid, Bio-terrorism and Disaster Management.

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It’s a fantastic service, and we’re going to start contributing every week with the long-term goal of hosting a few carnivals ourselves. Make sure to go check out the post.

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However, if you don’t fully understand how balance transfer cards work, you could find you end up in a worse financial situation than the one you started at.

Using Balance Transfer Credit Cards to Reduce Debt

If you’re already paying a huge interest rate on your existing credit card debt, you can definitely benefit from a balance transfer card with a low introductory interest rate.

Ideally, you would transfer the balance from your old account over to your new account and you’d instantly be paying much less interest on the amount you owe. This effectively means every payment you make goes directly towards paying off your debt levels instead of covering interest costs.

Unfortunately, there are many customers who find that it’s not always as easy as it looks, especially when you add in some of the pitfalls.

Things to Watch For

Before you apply for any balance transfer offer you see, take some time to do a bit of comparison shopping. Far too many people believe that a card offering a 0% interest rate for 6 months will be the best option for them. After all, you can’t get any lower than zero interest.

What those people forget is that 6 months isn’t a really long time, and at the end of that introductory period the low interest rate expires to be replaced with a much higher purchase rate.

So if you haven’t repaid your entire outstanding balance before the end of those first six months, you could find your interest bill goes right back up to where it was before you started.

Take a moment to work out how much you’d need to repay each month in order to reduce your debt down to a zero balance before the introductory period ends.

Example: if you owe $2,500 on your credit card debt, you’d need to pay at least $417 per month in order to pay it all off.

Opt for Longer Term

Not all balance transfer cards are set over a short term. In fact, there are some that extend for up to 18 months. If you know your budget won’t allow you to repay your entire balance before the low interest rate ends, work out whether a longer term card might be right for you.

You will find that the interest rate charged on longer transfer offers will be a bit higher, but in the long run you’ll be saving far more money.

For example: if you owe $2,500 and you opt for a balance transfer deal at 2.9% for 18 months, this makes your monthly budgeting much easier to deal with. You’d need to pay around $155 per month for those 18 months to repay your entire balance and not be affected by it reverting to a higher rate.

Always Check What the Rate Will Revert To

When the low rate offers end on balance transfer cards, the rate your account reverts to will often be much higher. It’s important you take the time to check how much you’ll end up paying if you have a balance left at the end of the term, or you could end up paying more than you need to.

Wherever possible, try to find an account that reverts to a competitive purchase interest rate.

Do the Sums

Of course an interest rate of 2.9% looks like you’re paying more than if you’d opted for the cheaper 0% option. But there are times when the higher rate can save you money. The key is to do your comparison shopping and then do the sums before you make your decision.

Here’s an example of a credit card balance of $5,000 that takes a customer two years to repay completely:

In this example, it shows how opting for a slightly higher rate over a longer term that reverts to a more competitive standard purchase rate can actually save you money.

Beware Your Balance Transfer Card Usage

One other major point to keep in mind with balance transfer credit cards is the payment hierarchy applied to these accounts. This means that if you have a really low balance transfer interest rate applied to your account, don’t be fooled into thinking you can just use that same card to pay for a purchase.

Even if you think you’ll put that money you spent right back onto the account again next pay day, banks have different ideas.

They call this a payment hierarchy, and it means they allocate your repayments towards paying off whichever debt is charged at the lowest interest rate first. This leaves the debt amounts incurring higher interest levels unpaid until you clear those other balances first.

Here’s how it works: Assume you spend $200 on a purchase today and you put that money straight back into your credit card account tomorrow. That money won’t go towards paying off the amount you spent on the purchase.

Instead, it will be applied to the balance amount with the lowest interest rate – in this case, your balance transfer amount.

So that $200 will remain unpaid for until the amount you originally transferred over is paid off first. During that time, that little $200 amount will be attracting the standard purchase interest rate the whole time.

It’s important that you stay disciplined with your credit card usage in order to get the most benefit out of it. If you really want to pay for a purchase, use a different card, of you’ll end up paying more interest than you need to.

Timothy Ng lives, breathes, and sleeps personal finance! Check out his in-depth guide to doing a balance transfer where he answers everything you need to know to reduce your credit card debt.

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Details About the Credit Card

There will be some basic information about your credit card, like the credit card issuer and the first few digits of your account number. The specific credit card you have won’t be listed. For example, a Citi Platinum MasterCard looks the same as a Citi Secured credit card.

Account Details

For each of your credit cards, the credit limit, balance, highest balance charged, and monthly payment will be listed. Your credit limit and credit card balance are used to calculate your credit score. The ratio between these two is called your credit utilization and is a major part of your credit score. The credit limit and balance that appear on your credit report may not match your current credit limit and balance since your credit report details are updated periodically, not real time.

Payment History

Your monthly payment status for the last 24 months will appear on your credit report. Each month will show whether your account was current, late by 30, 60, 90, 120, or 180 days, charged-off, or placed with a collection agency. If you have late payments that were older than 2 years, there will be a note on your account to indicate how late you were and how many times you were that late, e.g. 90 days late 2 times.

How Long This Information Is Reported

There’s no time limit for reporting details about your credit card accounts that are positive and still open. Negative credit card details will stay on your credit report for seven years, except credit cards that were included in bankruptcy, which will stay for 10 years. If you close an account in good standing, it will remain on your credit report until the credit bureau decides to remove it.

How to Remove Credit Card Errors on Your Credit Report

If your credit report contains errors about your credit card details, for example, if your card issuer reports a late payment that was really on time, you can have this information removed. You can contact the credit bureau and ask them to remove the error, providing any proof you have of your claim. You can also take your dispute directly to the credit card issuer if the credit bureau doesn’t correct the details.

An accurate credit report is important because creditors, lenders, landlords, and even employers check your report to review your credit habits.

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Minimum Payment and Due Date

At the very least, you should confirm the minimum payment that’s due and date you need to send the payment. If you send less than the minimum or your payment arrives after the due date, you’ll face late payment penalty up to $25 or the amount of your minimum payment. If you do it two months in a row, the credit card issuer can charge you a $35 late fee and increase your interest rate.

Payment Instructions

Your billing statement will include information about where to send your credit card payment. It’s important that you send your payment to the correct address to make sure it’s credited to your account on time. Your statement will also include instructions for making phone or internet payments if one of those methods is more convenient for you.

Transactions

Before you send off your credit card payment, review your transaction history to make sure everything is correct. The amount of each of your purchases should match your receipts and all the transactions should be ones you made. If you see anything suspicious, report it to your credit card issuer immediately. The sooner you report billing errors, the less likely it is that you’ll be responsible for the error. If you wait more than 60 days to dispute the billing error, the credit card issuer doesn’t have to correct it.

Minimum Statement Warning

So that you’re completely informed, your credit card billing statement has to include a warning about how long it will take you to pay off your balance at minimum-only payments. It will also include total pay off amount so you understand how much interest you’re paying on your purchases. You will also find the monthly payment you have to make if you want to pay off your balance in three years.

Balance and Available Credit

On your billing statement, you’ll find the amount of your credit card balance, credit limit, and available credit as of the date your billing statement was printed. Your actual balance could be different – higher or lower – from your balance on the date you receive your statement if you’ve made any new purchases or payments on your account.

Don’t take for granted that everything on your billing statement is correct. Take time to review your statement to confirm the accuracy of the details.

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Interest Rate

The credit card interest rate is arguably the most important credit card feature. Interest is one of the main ways credit card issuers make money, so you have to pay attention to the interest rate you’re being charged. Lower interest rates are better because it means you won’t pay a high cost for carrying a balance on your credit card. If you don’t carry a balance on your credit card, the interest rate is less important, but few people actually pay their balance in full every month.

Credit Card Fees

Fees vary by credit card, but all credit card issuers are required to list credit card fees in the credit card disclosure they give you when you apply for the credit card. Common credit card fees are the annual fee, late fee, over-the-limit fee, returned check fee, and foreign transaction fee. Most these fees can be avoided depending on how you use your credit card. If your credit card charges an annual fee, make sure the credit card gives you some type of benefit commensurate with the fee.

Credit Card Rewards

Some credit cards let you earn rewards on your purchases. Typical rewards are cash back or a credit to your account balance, points that can be redeemed for merchandise, or miles that can be used to purchase airline tickets. If you sign up for a rewards credit card, make sure you get a good deal on the amount of rewards you earn and the number of rewards you must accumulate before you can redeem them. Review any stipulation on the rewards, like a minimum spending balance or reward expiration.

Credit Limit

The credit limit is the amount you can charge on your credit card before you’re hit with an over-the-limit fee. Recent changes to the credit card law requires you to give the credit card issuer permission to process transactions that would put you over the limit. If you don’t opt-in, these over-the-limit transactions would be declined. Some credit card issuers have eliminated over-the-limit fees, but not all have, so make sure you learn about any over-the-limit fee before you start using your credit card or agree to opt-in to over-the-limit transactions.

Pay Attention to Important Features

Any time you choose a new credit card or use one of your existing credit card, make sure you review the credit card features so you know how much you can spend and what you’ll have to pay.

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Credit Card Accountability, Responsibility, and Disclosure Act

In 2009, the Federal government passed a series of laws that protect credit card users from predatory credit card issuers. Here are some of the provisions of the Credit CARD Act, which amends the Truth in Lending Act.

Credit card issuers can’t raise the rate on your credit card unless they give you a 45-day advance notice. During that period of time, you can opt-out of the rate increase and pay your balance off at your old interest rate, but your card issuer can cancel your credit card if you make that choice. Card issuers don’t have to give you an advanced notice if you have a variable APR, if you are 60 days past due with your payments, if a promotional rate is expiring, or if a hardship agreement is ending.

Your payment due date must fall on the same date every month. Payments received by 5:00 pm on the due date are on time. You can’t be charged a late fee if your due date falls on a day the card issuer doesn’t process payments as long as your payment is received by the next business day. Credit card issuers have to mail your billing statement at least 21 days before your due date so you have a chance to make your payment.

Fair Credit Reporting Act

Credit card issuer typically report details about your credit card and payment history to the credit bureaus. You have the right to check your credit report to verify that information on your credit report is accurate. If you find errors on your credit report, you can dispute those errors either with the credit bureau or the credit card issuer.

Fair Credit Billing Act

If you find an error on your credit card billing statement, you have 60 days to dispute the billing error, in writing, with the credit card issuer. Once the card issuer receives your dispute, they will do an investigation. In the meantime, you don’t have to pay the disputed charges; you won’t be charged interest or late fees on the charges while they’re in dispute.

Truth In Lending Act

Credit card issuers are required to disclose information about pricing and conditions of a credit card whenever they’re marketing a new credit card and when your existing credit card terms change.

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Start by making a list of all the credit card debt you owe. This will help put your debt in perspective and help you come up with a plan to pay off the debt. On your list, write the name of each creditor, the interest rate, minimum monthly payment, and total balance due. If the account is past due or with a collection agency, make a note of that, too.

Decide how much you’re able to pay each month toward your debt. If you don’t already have a budget, create one. Having a budget lets you know where your money should be spend and you can track your spending against your budget to see if you’re overspending in any area. If you have extra money in your budget, you can put this money toward paying off your debt.

Using your list of credit card debt, pick a credit card to pay off first. It might be the card with the highest interest rate, lowest balance, or one that’s about to be charged-off. Each month send all the extra money in your budget toward this one debt that you’ve picked to pay off first. Meanwhile, make the minimum payment on all your other debts. Once you’ve paid off that first debt, you can pick another one to pay off by sending in a lump-sum payment every month. Continue this process until you’ve paid off all your debt.

Getting the Money to Pay Off Debt

That’s the simple way to pay off your debt. More often than not, getting rid of your debt is more complicated than that. For example, you may not have extra money you can put toward your debt each month. If you find that you’re basically living paycheck to paycheck, take a close look at your spending to see if there are some places you can cut back. For example, you may prepare your meals at home more often or eliminate cable television. Look for ways you can cut back on each of the areas you spend in.

You can also look for ways to increase your income. With unemployment rates at such a high level, it may not be easy to get a second job. You may be able to make extra money in a few other ways, like creating income from a hobby, having a yard sale, or selling items on eBay.

If you can’t come up with the money to pay off your credit card debt right now, keep your plan in front of you so you can revisit it when you do have extra money. In the meantime, don’t increase your debt by making new credit card purchases.

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New Credit Card Law for College Students

The Federal government recently passed a credit card law to keep credit card companies from preying on college students. Credit card companies are required to verify the income of all credit card applicants under 21. Without the proper income, the college student is required to get a cosigner before getting the credit card.

Ways to Avoid Credit Card Debt

Learn how credit cards work. Many college students get into debt because they simply don’t understand how credit cards work – or the penalties they receive when they don’t pay their balance in full and on time. The short version: credit cards charge interest on your balance when you don’t pay it in full and a late fee when you don’t pay your balance on time.

Charge what you can afford. Ideally, you’ll pay your credit card balance in full every month. If you want to keep that goal each month, you can only charge as much as you can afford to repay. That means if you only have an extra $25 to spend on a credit card balance, you can’t charge more than $25. Charging such a small amount keeps you from creating a balance you can’t repay and keeps you from paying interest.

Pay the bill on time. It’s very important that you pay at least the minimum amount due each month by the due date. If you don’t pay the minimum, you’ll face a late fee. The next month’s payment could be double or more and will be even harder to pay. Each month you miss a payment, the past due balance becomes greater and more difficult to repay. This is how many college students get in trouble.

Remember that out of sight is not out of mind. You can’t ignore your credit card balances. Credit card companies will pursue you for payment if you fall behind. Eventually, they’ll send you to a collection agency that will also hound you until you pay the debt. If you need help making your credit card payments, get that help sooner rather than later.

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How People Normally Pay Debts

Many people approach debt repayment in a way that’s discouraging and not motivating. One of the worst ways to pay back your debt is to make minimum payments on all your credit cards and loans. Minimum-only payments will keep you in debt for several years. If your debt is large enough, it could take decades to completely repay all your debt at minimum payments.

Another slow way to pay off your debt is to increase your payment on several or all your credit cards. Sure, it’s a good thing that you’ve increased your payment beyond the minimum, but you won’t make a huge amount of progress this way either because all your balances are being paid off slowly.

How a Debt Snowball Works

To see progress in paying off your debt, you have to make a large payment on your debt, if not to all your credit cards, then to one credit card. And that’s the way debt a debt snowball works.

To start a credit card debt snowball, you make a lump-sum payment on one of your debts while making minimum payments on all your other debts. Then, once you’ve completely repaid the first debt, you’ll do the same thing for another debt, combining your previous lump-sum payment with the minimum payment for that debt. Keep up this pattern of paying off debts and increasing your monthly payment until you’ve repaid all your debts.

Which Order to Snowball Your Debts

Personal finance experts disagree on the best order to pay off your credit cards. Financially speaking, paying off your highest interest rate debt first is a better idea because you save money on interest in the long run. But, you’ll get smaller debts out of the way sooner if you pay them off first.

The right order to pay off your debts is the order that’s best for you. You may choose to pay off a creditor who’s threatening to raise your interest rate or a debt that’s close to being charged-off. The goal is to put your debts in a payoff order that you’ll stick to.

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