How To Fight Credit Card Debt With A Balance Transfer Option

how to fight credit card debt with a balance transfer option



Ah, the New Year, a new perspective, a new way of looking at things in our lives. For lots of people the New Year means making resolutions or promises to themselves to stay on track with their goals.

Maybe your New Years Resolution is keeping that promise to yourself about quitting smoking and saving money at the same time or just saving money, online trading, starting a budget or starting a new career or second job.

Beginning your year with a monthly budget can be a great start to tackling your debt. We’ve been using a budget for a number of years now and track all of our income and spending which includes asking for receipts.

Sounds a bit boring but in part this is what allowed us to become debt free before we were 40 years old. Ultimately whether we had debt or not our budget allowed us to see what’s costing us more than it should and to adjust our spending habits to compensate for it.

Related: How to create a results driven budget for 2018

I’m not going to lie to you, having a second job helped out with growing our net worth and inching us towards our goal of paying our mortgage off so quickly. I didn’t do that on purpose as it was merely a means of getting my foot in the door to a career I would ultimately love. I did just that.

For us in the CBB household, it’s out with the old to make may for the new.

We have had long enough to build up our collection of deals to really start making a difference in our house. This year will also mark the first year for quite some time that I’ve only got one career path to concentrate on too. So, for us it’s about using our time this year and completing some home renovation projects that have been on the books for a while.


Applying credit cards to our advantage


Most of the deals we’ve bought over the years all go on credit cards where we earned points on top. We have multiple credit cards, some of them are for different reasons. One card literally has a $500 limit. We use that one for online purchases only. That might sound a little paranoid but I want to limit our online foot print to a minimum.

The only reason we use different cards is because they have different levels of credit available on them. We’ve had companies phone us up and ask us if we would like to have more credit available to us, but we’ve declined.

Although we use credit cards for almost all of our everyday shopping from groceries to gasoline, we still use cash, but for very large purchases we actually use bank drafts. I guess you could call us old school but even bank drafts have got the bad end of the stick recently where a couple lost a bank draft that was part of an inheritance while in transit to the recipient via UPS.

TD Canada Trust has apologized to an Ontario family and released more than $846,000, hours after CBC News reported that their original bank draft had been lost by UPS.

Thankfully the bank sorted the situation out for this couple, but not without despair.


Canadian Household debt is far too high


Over the years, we’ve been careful with our money and making our money work for us instead of making someone else rich. But what happens if your New Years resolution is to get rid of that annoying debt around your neck?

It seems that many individuals and/or families are piling on more debt, as only back in September of last year there was more news on how badly the Canadian Household debt ratio is. As of December 2017 Statistics Canada released a report that says the debt-to-household ratio went up and is now sitting at 171 percent.

Statistics Canada said the household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income, was relatively flat at 13.9 per cent, while the interest-only debt service ratio was 6.3 per cent, down from 6.4 per cent in the previous quarter.

The debt may not be all just down to spending money at the shops, larger mortgages due to rising home prices has driven Canadians into more debt as well as increases to electricity and food prices. That’s only a mention of just a couple of items because when one thing goes up the trickle effect happens.

Related: All you need to know about the Ontario Minimum Wage Hike

The decline of full-time jobs hasn’t helped the people of Canada either and now with the minimum wage hike in 2018 up 21% from $11.60 to $14.00/hr we may see job loss, business closures, price increases and more Canadians worried about job security. Not everybody has a full-time job with good benefits. Some people work seasonal jobs and for others to make the monthly bills they require two or more part-time jobs. This can be draining physically and emotionally for anyone.


Spending too much on credit


It might be that credit card debt you’ve been wanting to pay off over the past year and couldn’t quite manage it. It could be that you spent too much at Christmas and now you’re regretting the decisions you’ve made. You’re not alone.

Recently we spent a rather large sum of money on renovation materials which exceeded $5,000. This meant that if we couldn’t pay the balance in full the following month, we would start accruing interest on top. I’m too frugal to let someone else make money from me so we paid it off straight away.

Unfortunately, not all of us are in the same position and there was a time in our lives where we weren’t either.

Paying off the debt accrued on credit cards isn’t easy be any means. High Interest rates can leave you fighting an ongoing battle that never seems to end.

In the worst-case scenario, you’re paying the absolute minimum payment every month and not getting anywhere. At this point you may consider getting a bank loan at a lower interest rate or even using a debt consolidation company.

You can also become your own debt consolidation company by obtaining a bank loan at a lower rate than the credit card company offers and then negotiating to pay off the balance as a lump sum but at a reduced amount.

Either way, the bank or consolidation company will still be making money from you. The name of the game for you isn’t so much to reduce the monthly repayments but redirect what you are paying into actually paying the debt off and not just paying the interest.


Credit Card Balance Transfer


If you’re at odds with your current credit card company it might be a time to change. Paying off a credit card account with another credit card is possible but if the interest rate is just as high you’re not getting yourself any further to being debt free.

You’ll still require a good credit rating however. If you don’t know what your credit rating is, you may want to get a credit check completed. We tend to do this yearly no matter what just to check in and make sure nothing fishy is going on without our knowledge.

What is a balance transfer credit card? This has been a widely asked question for me over the years and although YOU may not think it will work for you or it’s not the best option it may be the only option for someone else.

Balance transfer example

Taking advantage of a balance transfer could save you enough money to put towards other debts depending on which credit card you set up the balance transfer with.

  • As an example, we’ll take the $5,000 that we spent and do a little mathematical experiment on it:
  • Our credit card has an interest rate of 19.99% but to make things a little easier we’ll call it 20%.
  • This amount of money would take us 22 months or almost 2 years to pay off if we pay paid if off at $275 per month.

22 months at $275 per month makes $6006.53 – so we would actually pay the credit card company $1,006.53 to use their money. That’s a pretty hefty sum of money for anyone. I’m sure you could do something else with that $1,000.

But, if I did a balance transfer to a credit card that gave me 12 months to pay off the same amount of money interest-free what would the difference be? By keeping the same payments of $275 per month because that’s all I could afford, with 12 months of interest-free time I can pay more off in a shorter amount of time.

12 months at $275 per month makes $3,330 paid off, leaving me with $1,700 left to pay off. Even if that $1,700 was still at 20% interest I’d be able to pay the rest off in 7 months and it would only cost me $109.56 in interest.

Some credit cards will offer different rates for the rest of the balance transfer so be careful and always read the fine print. This rate might not be less than the usual interest rate, but even at 22% the final 7 months would still only cost you $121.37.

That means I’d be able to pay it off slightly sooner, but reap a bigger reward of saving almost $900.

It’s always worth checking out different credit cards and taking advantage of what they can offer you. The MBNA Platinum Plus MasterCard was named the best balance transfer credit card by in 2017. We take advantage of credit cards by collecting PC Plus Points and Canadian Tire Money which helps us save even more. The more you save, the more you save there’s no fine-line about it.

Some credit cards will charge you a one-off fee when completing a balance transfer and is usually based on a percentage of the balance transfer itself. A balance transfer fee of 1% would add $50 to our total that needs to get paid.

Basically, they are charging you $50 (1%) in this case to take on your debt for 12 months while you pay it down. It’s not the ultimate solution but it may help you out.


Balance transfer research


You’ll need to sit down and work out what you want out of your balance transfer and if you’re not sure talk to a financial advisor who may direct you from a professional stand-point.

Do you need a minimal interest-free period and a much lower balance transfer interest rate as your debt load is too big to take advantage of the interest free 12 month period? Maybe having a 12 month interest-free period is all you need, by which time you’ll have completely paid off your debt with absolutely minimal costs to you.

If you’re unsure what your current credit card balance is costing you, try using an online calculator. I’m not here to recommend you go out and start spending money on credit cards, I’m just letting you know that there are alternatives to paying lots of interest on your balance.

A little research and some paperwork could well help you out this year with your finances and it may take time but your money is worth that time. Make sure you know what any up-front costs will be and what could happen in the event of an unplanned life event.

Read, Read, Read

In the end though, reading the fine print is essential. It’s also important to never just pay the minimum payment every month. Don’t let yourself get complacent by having the interest taken away for the year and start adding more debt on top. No debt repayment plan will fit you perfectly and why you need to find out what will work for you.

Your ultimate goal is to be debt free.

Discussion Question: Have you ever used a balance transfer with your credit cards which ultimately saved you money in the long-term?

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