Low-Interest Credit Cards Can Be a Useful Debt Management Tool

March 13, 2009 by  
Filed under Credit Cards

Credit card debt is one of the most daunting things that could be a part of your life. You probably still find a ton of low-interest credit card offers in your mailbox on a regular basis, and may be considering taking one out to transfer balances or use for everyday purchases.

The secret to credit cards is that they must always be used as a tool for convenience; they should never be used to buy things that you can not pay cash for – only for items that make it impossible to pay for with cash such as online purchases.

Credit card companies will issue you a certain line of credit that may tempt you to use and max it out to buy everything your little heart desires. However, many don’t realize this will lead to 10, 20, sometimes 30 years of payments to the company that issued your card!

If you currently have credit card debt that you are trying to pay off, a low-interest credit card can be used as part of your personal debt management or debt consolidation plan. If you can not qualify for a debt consolidation loan, or have not reached agreeable terms with your current creditors, switching balances to a lower-interest card could save you thousands in interest fees while you pay the debt off.

When considering an offer, remember to read the fine print. Does the low interest rate expire in a few months and automatically increase, or does it stay in effect for the life of the account? Also, ask if the low rate will apply to transferred balances.

If the rate will expire, ensure it is far enough down the road for you to pay off the balances you will transfer. Any good debt consolidation program requires advanced thought and foresight into these little details!

After applying for the low-interest card and transferring your current credit card debt, CUT UP THE CARD and never use it for anything, period. If you think you may need to use it in an emergency situation because you don’t have a savings account, you can freeze the card to prevent impulse purchases and use in the future.

After you pay off your existing debt, it’s time to start rebuilding your credit and work on improving that credit score. Use your low-interest credit card for small, everyday purchases like your coffee, gas or groceries. Then, when you receive your monthly bill, PAY IT OFF. No ifs, ands or buts, you must pay off the balance immediately. Otherwise, you’re opening the door to the vicious cycle you just worked so diligently to get out of!

Also remember that the amount of your monthly payment toward your debt consolidation plan will greatly affect the cost of your credit. Paying only the minimum payments will likely not save you much at all. You must increase the monthly payments drastically to see those balances disappear and begin saving your own money!