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Take Advantage of Credit Card Offers

Credit cards are a boon to modern commerce. The average double-digit APR makes it very good business. The value of most stocks does not grow by that much per year.

But the benefit to credit card issuers has become a bane to many users, especially those who have acquired large debts through plastics. This is further compounded by the not-so-favorable business climate, which has caused the erosion of the purchasing power of many. So what can those with large credit card debts do to alleviate their precarious situation?

Ironically, they can take advantage of best credit card offers to lighten the financial burden.

Balance Transfer Offers

This allows you to transfer your balance from a high APR card to a low or even zero APR one. So there is hope after all. Since this offer affords an effective lowering of the financing charge, you can use the savings to reduce your credit card exposure.

If properly evaluated and executed this benefit can be realized. But it necessitates:

1. choosing the appropriate card,
2. making sure that payments are done on time, and
3. not adding to your credit card debt.

Choosing the Appropriate Card

There is a plethora of credit card offers specific to balance transfer, and they vary on the following:

1. Duration of 0% APR on balance transfer. This can be as short as 5 months or as long as 21 months depending on the issuer. Of course, the longer the duration, the better for the credit cardholder. Note that after the promo period, the APR reverts to the normal rate. And in the event that the cardholder is remiss in his payment, the penalty may be the revocation of the 0% APR offer with corresponding penalties to boot. So if you decide to avail of this offer, make sure that you pay on time.

2. Transfer fee. Legally, this ranges from 1% - 5% of the amount transferred, the industry average being 3%. But this often depends on the package, with some issuers charging a higher fee but offering a longer 0% APR period. This fee is in actuality a financial charge imposed in lieu of the APR. Hence if the offer is 0% APR for 12 months having a 3% annual fee, the implication is an effective interest of 3% per annum. Such being the case the lower the percentage the better for the cardholder. It may be worth noting that some credit unions do not charge a fee for their balance transfer offers, although the 0% APR period is just 5 to 6 months. However, this is zero cost of money, which will afford you significant savings. These are credit card balance transfer offers well worth considering. Unfortunately, they are available only to a select few.

3. Credit limit. Offers vary in terms of maximum amount you can transfer, which is often dependent on the 0% APR duration, transfer fee, and credit standing of the individual. The credit limit should be matched with the amount of your debt. If the amount to be transferred is less than $ 5,000 there is no point in getting a card with a $ 10,000 limit combined with a shorter 0% APR period and higher transfer fee.

4. Annual fee. Although this is waived by most issuers, some still charge an annual fee. Just make sure that you are not one of the few still paying this fee.

5. Regular APR (which applies after the promo period). This ranges from 11% to 25% (or even higher) depending on the credit worthiness of the cardholder. If you will be unable to settle your debt within the promo period, then this rate becomes material. Of course you can always try to move your account to another company offering 0% APR on balance transfer. But there is no assurance that a similar credit card offer will still be available by then. Or there may be restrictions on transferring your balance. You have to consider all these possibilities because they will impact on your financial situation.

6. 0% APR also on purchases. Some offers allow this as well. But if your intention is to lessen your liability, it is best that no additional credit card purchases are made.

Ultimately, your choice will depend on your particular situation – how much monthly payment you can afford, how soon you can pay off your debt, and how much credit card debt you have in the first place.

Make Sure that Your Payments are Done on Time.

This is important for two reasons:

1. Should you be remiss in your payments, a corresponding penalty will be meted. In all likelihood, the coveted 0% APR on your balance transfer will be revoked, and you will end up having to shoulder an even higher financing charge. You will be worse off financially.

2. There will be a negative impact on your credit score. These issuers report to the credit bureaus and delays in your payment will surely be reflected. This means that you will not be able to avail of the best balance transfer offers in the future. Also, your dealings with financial institutions will be affected.

Not Adding to Your Credit Card Debt

The objective of the exercise is to reduce your debt and eventually be debt-free. If you will continue to add to it, even if the APR is 0%, the cycle will continue. Remember that 0% APR on balance transfer results in a reduction in financing charges, but it does not reduce your debt. You will still have to settle your liabilities. The idea is to maintain or even increase your payments in order to eventually settle your balance in full.

Making additional credit card purchases also impacts on your credit score since your debt to available credit ratio increases. To have a good credit score, this ratio should be less than 1:3.

So you should control your purchases and make the necessary sacrifices. Remember that you are in the road towards financial recovery, and depending on the amount of your debt, you may have a long way to go.

Are Credit Card Balance Transfer Offers for All

This is the sad fact, which we all have to accept. More often than not, the favorable packages are available only to those with good to excellent credit rating.

You cannot blame the financial institutions for this policy. After all, they are here to make money through lending funds and managing risks. And having a credit rating of fair or lower implies that you are a high risk borrower, hence you are not good business.

So what can you do? For the time being, you are stuck with your present credit card with the high APR. It is recommended that you pay on time, and if possible settle your obligations in advance. In time, this will improve your credit standing making you qualified for favorable credit card offers. But you will definitely have to control your purchases so that your balance will not balloon.

Are there other options available to those with compromised credit standing? If your credit card debt is still substantial, you hardly have any options. Of course you can still avail of other non-balance-transfer credit card offers, but these will not help in alleviating your financial predicament. Availing of them may even tempt you to make further credit card purchases, which will be to your detriment.

Where Does this Leave Us?

Credit cards were created for a purpose. From the point of view of the issuing company, it is an opportunity to make money. After all, a double digit return on investment per annum is nothing to scoff at. And provided they make competitive credit card offers and do sound risk management, they will realize this return. Notice the proliferation of credit card issuers. This is an indication that it is good business.

But credit cards are a boon to users as well. It provides purchasing convenience, and ready credit when necessary. It is more secured than carrying cash around. And it is handier than issuing checks. The problem is that they are very easy to abuse.

The existence of plastics in our wallet makes us aggressive buyers. It enhances our purchasing power, or at least we feel that our purchasing power is heightened. And we are tempted to spend, whether we can afford it or not, whether the purchase is necessary or not.

Such being the case, it is not the fault of the credit card that we are in a financial strait. The credit card per se provides us with benefits, but it is our lack of discipline that has led us to a situation of dire credit card debt. We have become a slave to the card to the extent that it controls us and not the other way around. And it is our fault.

For this reason, a debit card may be a better alternative. It may not provide ready credit, but it provides best balance transfer offers and the same purchasing convenience and security. And you are limited to the amount loaded in the card. Probably we should be looking at debit card offers instead.

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5/16/2012 4:18:31 AM