Everybody needs credit at some point or another in their lives. If you use it responsibly, it can be one of your greatest assets. While balance transfers can sometimes save you from a horrible credit situation, it can also be a convenient ally if you understand how to capitalize on its benefits.
Many credit card companies offer low introductory APR on balance transfers to entice you to opening an account with their bank. While you might not be considering a new account presently, you should know that this could be wise move on your behalf. That’s because consolidating your credit on one card can not only save you a lot of money, but time and heartache too. With all of your credit in one place, you should be able to make more significant payments, more often, which can, in turn, pay your balance down faster than expected. Typically, these offers are introductory, meaning that you open an account with a variable rate that starts as low as 0% but adjusts to something higher after 6, 9, or 12 months. If you manage your money properly, though, you can pay these balances off before the adjustment settles.
By consolidating your credit card balances on one account, you immediately reduce your interest rates. Since you likely had multiple cards, you were probably paying more than one interest rate, and none of them were even close to 0% APR. These add up quickly and can cost you thousands of dollars by the time you finally pay off the accounts. However, under one rate, you will know exactly how much to pay and you can more easily calculate how long it will take to pay it off. This gives you the power to make payments according to a schedule that you determine.
Also, when you consolidate your credit, you decrease the likelihood of encountering a fee. Although you are responsible with your payments, sometimes things come up and you have to miss a payment. If you miss all of your credit card payments, you get hit with as many fees, which can quickly send you spiraling out of control. However, consolidating cuts your payments down into something that should be much more affordable, and if you hit a snag in your budget, you end up with only one fee. This won’t set you back so much that you can never catch up, and within a month or two you will be back on track.
There have been some significant changes to credit card policies this past year. One of the most important is how your payments are applied to your account. Credit cards carry multiple interest rates for the three basic types of activity: purchases, cash advances, and balance transfers. Before 2010, your payments were being applied to the accounts with the lowest interest rates, leaving your high-yield accounts to fester and keep you in debt longer. The new laws, however, force credit card companies to use the excess of your payments to pay down your highest-interest balances first.
When you have credit, you are held by the bank as a liability. The more credit you use, the more likely it will be that you will default. Unfortunately, that’s the way that they think. The more consistently you make payments and the longer you do so, the less they view you as a liability and the more likely they are to reward you with more credit if you need it. By consolidating your debts into one account, you manage your budget better and commit to more responsible activity on your account. You also open yourself up to a better credit standing. By leaving your old accounts open after you transfer money, you will immediately appear more attractive because it will appear that you have a better credit-to-debit ratio.
In the end, all of this should result in an improvement in your credit score. Reducing the amount of your overall minimum payment allows you to make more substantial payments and decreases the likelihood that you will default. By keeping your credit limit high and increasing your available credit through regular payments, you will appear responsible and trustworthy. While there are many factors that go into determining your credit score, the ability and likelihood of making payments bear the most weight. Keeping this in check will keep you in the clear.
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