Using a Credit Card to Pay Off Debt
Contemplating whether you should acquire another card to settle your financial obligations? This is a common query for many dealing with debt. Here’s a comprehensive guide to assist you in understanding the concept of balance transfer, the factors you need to consider, and ultimately help you make an informed decision.
Understanding the Balance Transfer Concept
The process of moving the outstanding balance from one credit card to another is known as a balance transfer. This strategy can be beneficial, especially if the newly procured card offers a lower interest rate or compelling promotional offers. However, it’s prudent to evaluate all your options before proceeding with such a decision.
Choosing the Right Credit Card: What to Consider
Variety and Suitability
Choosing a credit card is akin to choosing a pair of shoes — there’s a plethora of options available, but the key is to find the one that fits your needs the best. Ensure your selected card aligns with your goal of clearing your debt as swiftly as possible.
Balance Transfer Costs
Transferring your debt from one card to another typically involves a balance transfer fee. This fee is usually calculated as a percentage of the total amount being transferred. For instance, a balance transfer of $1,000 with a 3% fee will cost you $1,030 in total.
Interest Rates
A lower interest rate on the new card can make the balance transfer worthwhile. However, it’s crucial to ensure that the rate remains lower than your current interest rate in the long run. If a promotional rate is offered, understand its duration and the rate post-promotion to avoid any surprises.
Annual Charges
Many credit cards include yearly fees ranging from $100 to $1,000. These charges are particularly common with low interest or reward credit cards. It’s important to ensure that these costs do not negate the savings you might be making through lower interest payments.
Card Features
Also, consider the features of your current card before making a switch. If your existing card offers travel rewards, merchandise points, or cash back, losing these benefits might offset the potential savings made through lower interest payments.
Finding the Right Credit Card
The Financial Consumer Agency of Canada provides a handy credit card selection tool. It allows you to compare different card options based on your requirements, making your decision-making process easier.
Effective Debt Repayment Strategy
Getting rid of your old credit card is recommended once the balance transfer is complete to avoid falling into the debt trap again. Next, devise a solid plan to pay off your new card. Remember, a balance transfer is not the solution to your debt problem; changing your financial habits is.
When Balance Transfer is Not an Option
Unfortunately, not everyone is eligible for a balance transfer. However, it’s important to remember that there are other options available. A Licensed Insolvency Trustee can offer you a Free Confidential Consultation to review your entire financial situation and guide you through your options.
Whether you qualify for a Debt Solution such as a Consumer Proposal or might benefit from a consolidation loan or budgeting help, your Trustee will present all the information you need to make the most well-informed and strategic decision to achieve a financial fresh start and eliminate your debt for good.
In conclusion, getting another card to pay off your debt can be a viable option, provided you understand the implications and strategies involved. Always remember, the goal is not just to transfer your balance but to change your financial behaviors to achieve long-term financial health.
