Now, let us talk about credit cards and how appealing and dangerous it can be to transfer balance to another card. Have you ever seen advertisements from various banks with zero percent interest for twelve months? Well, it feels like getting free money, right? Well, what it actually is, is just transferring your debt to another house in order to decrease rent expenses.
The principle is pretty straightforward. You transfer your debt from Capital One and Discover credit cards to a new one. In fact, the new bank is going to take care of paying your old debt off. Therefore, you start owing money to a new bank. However, there is one catch to this deal. The bank is going to take a fee from you, which normally equals to three percent of your total debt. Let us do some simple calculations.
If your debt is one thousand dollars, then immediately you are going to lose thirty dollars as a fee. It may not seem like much, however, if your debt is small enough, you will lose more money because of the fee than save because of decreased interest. In fact, if you can pay it off within two months, use your old credit card. What happens if you fail to pay off your debt?
This is a risk involved in this process. Remember, that zero percent offers on Chase or Citi cards expire in certain period of time. Therefore, once the expiration date has come, the interest rate is increasing dramatically. Normally, it is equal to twenty percent or even higher. Thus, when the time comes, you are going to owe a lot more than you did previously. Discipline yourself.
Try to understand whether you want to transfer your debt just to make yourself more comfortable. This is a psychological trick, which gives you a feeling that you have achieved something. But you are still responsible for your debt. And if you intend to continue spending using your new credit card, then it is not a good idea. You will get too many fees and interest rates.