It's important to take steps to eliminate credit card debt because it is one of the most expensive ways of borrowing money. The absence of a defined term, coupled with the opportunity to spend more, makes managing personal debt far more difficult.
Olinka Kosterof the The Mail Online stated that: "Those paying off the average credit card debt of £1,384 at two per cent a month will pay a total of £4,213 over 30 years and 11 months - longer than the average mortgage." Clearly, action needs to be taken to clear debt more quickly and a 0% balance transfer helps.
Paying the Minimum Won't Eliminate Debt
Extending the repayment term of personal debt is a encouraged by all financial institutions. The problem appears to relate to the way cards are regulated as current rules encourage the borrower to make the minimum monthly payment and pay more interest.
Simeon Linstead of uSwitch.com stated that: "The Banking Code states that minimum repayments should cover at least the interest charged each month, but this doesn't go far enough to protect consumers from a debt sentence that exceeds the length of the average mortgage of 25 years."
Competition amongst financial institutions for business has created an opportunity for those with unpaid debt. Hundreds of different 0% balance transfer credit cards are available, each offering the potential to save a substantial amount of money each year.
Eliminate Credit Card Debt with a 0% Balance Transfer Credit Card
Transferring a balance helps with debt clearance because a higher percentage of money goes towards clearing the money owed - not just interest. For example, a £5000 charge card debt at 18% APR means that the customer is charged £900 interest. This money will now be used to help clear debt.
Apply for a New 0% Balance Transfer Credit Card Each Year
Provided that the borrower has a good or excellent credit score, it is relatively easy to perform a transfer every 12 months to eliminate debt. Although this will lead to a lower credit score, it's helpful to take the following steps when finding it difficult to reduce debt:
- Ensure that the previous cards are closed as there will be a strong temptation to spend more money. Leaving the previous card active may exacerbate financial problems.
- Reduce the credit limit once a quarter on the new card so that the balance doesn't start to increase again. It is important to see regular progress with any form of debt reduction strategy.
Eliminating Debt on Your Credit Card
A 0% balance transfer credit card is an excellent way to eliminate credit card debt with only a small deterioration to your credit rating. Should the borrower's debt-to-income ratio be too high, it's possible to address this problem with a debt management plan or debt settlement program. These debt free solutions involve amending the terms so you can clear credit card debt at a far more affordable rate.
Sources
Koster, Olinka. (4 September, 2008). "Credit card debt that could last 30 years." The Daily Mail.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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