Do a Credit Card Balance Transfer and Save

Do you have a credit card or multiple cards that have outstanding balances? If you are like many cardholders, your minimum monthly payment is made up of just the interest that you owe on your account and their balances have “gotten out of hand”.  This sometimes happens when you hit a financial rough spot and use your credit cards as a crutch to get you through until better times.  With many cards, if you are a day or two late with your monthly payment, the interest rate is adjusted to a new, higher default rate that makes it even harder to get the balance paid off in full.  You can do a balance transfer and save big on your overall debt.

How it Works

Transferring a balance from your existing credit card to a new card is easy and simple.  You will locate a balance transfer offer that appeals to you.  Once you have been approved for the offer, you can do a balance transfer – usually over the phone with the company, or using “checks” that are issued in the welcome package that you receive when you become a cardholder.  Your old balance(s) is transferred to the new card and you will pay the new card issuer each month in lieu of your existing credit card company.  You can usually transfer the balance from one or more credit cards, department store cards, or even small bank loans (depending on the parameters that have been set by the new car issuer).

Things to Look For

While doing a balance transfer to a new card with a lower rate of interest can be a good way to finally get out of debt for good, there are some pitfalls to watch for because not all offers are created equally.  While the lower interest rate is an obvious note on your shopping list for a new card, shoot for a credit card to transfer your existing balances to that:

  • Doesn’t charge you an annual fee.  Any savings that you might have seen from doing the transfer might be negated by paying a steep annual fee.  In general, avoid offers that charge an annual fee altogether, no matter how enticingly they are advertised.
  • Charges a very minimal amount or nothing at all to do the transfer in the first place.  You don’t want to pay an exorbitant fee for transferring your balance from one card to another.

Has an extended “introductory period”.  Sometimes those offers of zero percent balance transfers are only good for a limited time, like six months.  After that period, your APR may be jacked up to a rate that is higher than you are paying now.  Look for a low introductory APR that is good for a year – this will give you time to pay off a bulk of your credit card debt before being charged a higher rate.   (Some folks may even go looking for a new “new” card when the low APR period is about to expire – and that’s perfectly legal and could be a smart move).

Credit Cards with Perks – Choosing the Right One

Check your mailbox on any given morning (or your inbox) and you are probably not surprised to find a few credit card offers inside.  If you are in the market for one, fierce competition among banks and card issuers means one thing. You do not have to settle for a card that doesn’t offer you “perks”.  Credit card perks can range from traditional rewards like free air travel to cash back on purchases that can amount to a significant amount of money over time.  Let’s look at how to choose the right card that has the perks that will benefit you the most as a cardholder.

Why Credit Card Companies Offer Perks

Perks or rewards that are offered by a credit card company are offered for one reason: to build customer loyalty.  Card issuers know that consumers have an abundance of choices when it comes to choosing a company – and they also know that cardholders are a fickle bunch.  By offering perks and rewards for staying with a company, the credit card company is rewarded with your business. It’s that simple.  So even though it appears on the surface that the company is doing you a great favor in offering these loyalty rewards, the truth of the matter is that they are gaining a bigger benefit than you are!  Keep that in mind when you are shopping for your next card that features these rewards:

  • Airline miles.  Many companies offer airline miles.  Airline miles as perks build up fast; by making purchases with this type of card, you receive “miles” that are redeemable for free or discount airfare.  This card is great for the avid business traveler.
  • Free credit reports.  Some companies give you free access to your credit report each month from the major credit bureaus.  This is a good perk for those cardholders who are monitoring their credit closely.
  • Discounts. Credit companies sometimes partner with other major companies to provide discounts on other expenses that you have, like phone service, or purchases that you make, like tickets to events or theme parks.
  • Benefits for your causes.  If you are not interested in rewards for yourself, why not choose a credit card that has perks for your favorite causes and charities.  From charities that benefit children, the homeless, and animals to those that help to promote a cleaner planet, there are lot of options when it comes to spreading the love by doing what you likely already do anyway – shopping!
  • Cash back and cash rewards. Nothing says “we appreciate your business” like cold hard cash.  If other rewards do not appeal to you, perhaps a little extra jingle in your pocket will.  Most cash back offers are around 1-2% of your total purchases – which doesn’t sound like much until you think about all those purchases you make each year – they really add up!  Some card companies will give you twice the cash back if you opt for a gift card with a partner store – which can quickly turn a $50 cash back reward into a $100 gift card for your favorite retailer.

No matter which type of credit card perks you choose, be sure to check out the fine print. This is found in what is known as the Schumer Box on the application’s terms and conditions section – which gives you details about the card offer you are reviewing, including its annual fee, grace period, APR, and how you can accumulate and use the rewards that are being offered.

Advantages of Prepaid Credit Cards for Bad Credit

In today’s economy, there are more people than ever before with bad or negligent credit files. Bad credit can certainly hit you head-on like a ton of bricks.  Once your reputation as a borrower has been soiled, gaining access to the credit that you need can become a challenge and getting a credit card is next to impossible.  Fortunately, there is an alternative for folks who have a less-than-appealing credit history: the prepaid credit card.

What is a Prepaid Credit Card?

The prepaid card looks and works just like any other card with one blatant difference: your credit line is determined by or in some instances equal to the amount of money that you deposit with the bank or lender who is issuing the card.  Some prepaid credit cards will set your credit limit at the same amount of your deposit while others may match your deposit amount. For example, if you deposit $500 into your prepaid account, your available credit (if matched by the issuer) would be $1,000.  You will receive a regular bill and statement each month, and you will have the option of paying a minimum monthly payment, paying a part of the balance that has been charged, or paying the entire balance off.  After a period of time, if you have exhibited responsible borrowing behavior, the company can convert the prepaid card to a traditional card and refund any money that you have deposited.

Benefits of Prepaid Credit Cards

The most obvious benefit of having a prepaid credit card is that you have access to make instant purchases and to pay bills online or over the phone without mailing in a check, and without carrying cash with you.  But the true benefit is that this type of account can help to rebuild your credit.  Like a traditional card, the prepaid credit card reports monthly or quarterly to the major credit reporting bureaus – Experian, Equifax, and Trans Union.  By making your monthly payments on time every month, you can add valuable points to your weak credit score.

Managing Your Account

Because the prepaid credit card represents a wonderful opportunity for you to rebound your FICO credit score, managing your account wisely is important. A responsible cardholder will:

  • Make their monthly payments timely, making sure to either pay online for expediency, or to mail their payment in early, allowing at least a week via “snail mail” to reach the payment processing center and be processed.

Never exceed the available spending limit.  Exceeding the limit will cause an over-the-limit fee to be placed on the account, which triggers an exorbitant fee and can look bad on your credit report.  As a general rule of thumb, you should never even approach your available spending limit.  Charge no more than fifty percent of the available amount each month, and pay off the bulk of what you owe each month, being careful to run a thirty percent balance. On a $1,000 credit limit, you should settle up with the card company each month by still owing around $300.  By running a balance, you prove that you can manage an account, which adds more points than paying off the account in full each month.

Student Credit Cards – Benefits and Pitfalls

One of the many advantages (or temptations, depending on how you look at it) of being a college student is that you will be offered various special credit cards during the course of your studies.  Student credit cards can be a huge benefit to you as a student, but there are also known pitfalls that are associated with incurring debt while you are still in school.  Let’s look at what you need to consider before you say “charge it”.

Credit Cards Just For Students

A student card works just like a regular card and is usually branded either Visa or MasterCard, although there are some department stores that offer cards specifically for students as well.  A credit card is different than a debit card.  While the debit card can be used in lieu of cash and is backed up by funds that you have in a bank account, when you use a credit card, you are borrowing the money for your purchases from the bank or credit card company that issues your card.  You “charge” purchases during a specific period and receive a bill at the end of the billing cycle.  You can elect to pay the balance in full when you receive your monthly statement, or you can make the minimum monthly payment.  Balances for purchases that you have made will accrue interest at whatever APR (annual percentage rate) that you agreed to when you accepted the terms of your account.

Benefits of Student Credit Cards

The biggest benefit of having your own student credit card is that you don’t have to carry cash with you.  Carrying cash on your person poses security risks that can be avoided totally when you have plastic. If your student card is lost or stolen, any charges made to it (if properly and timely reported) will not be your responsibility.  Another obvious benefit of student cards is that you will have instant access to money for purchases that you must make.  As any student can attest, it is often hard to make financial ends meet when you are attending class full time.  Having a “backup” funding method is perfect for emergency purchases that you can’t make with your regular funds (and without asking Mom and Dad).

If you decide to take advantage of a student credit card, be sure to know the responsibilities that are tacked on to it. If you run up a big balance it can take a long time to repay because much of a minimum monthly payment is just the interest on your balance. You must make your minimum monthly payment each month on time. If you fail to do so, your credit score can be negatively affected. A bad credit report can haunt you for as long as seven years, longer in some states.  Be sure that you are responsible enough when handling your finances to actually manage a credit card.  And beware of taking out too many cards at once; little amounts charged “here and there” can add up over time, leaving you swimming in debt before your career even gets started!

Rebuilding Credit Post-Bankruptcy with Credit Cards

No matter what path in life led you to file bankruptcy, rebuilding your credit once your bankruptcy proceedings have been discharged is no small feat. Your new image as a borrower is one of a person who is reckless – and who does not mind walking away from responsibility by abandoning their just debts. The good news is that you can rebuild your post-bankruptcy credit by opening up two to three credit card accounts.

Credit Cards for Horrible Credit

Once your bankruptcy is discharged, your slate is marred, not “wiped clean” as the old saying mistakenly goes.  Rebuilding your credit takes carefully planned and precisely instituted steps.  You will not qualify for a traditional credit card right away after bankruptcy, but you will qualify for prepaid cards and contrary to popular belief, there is a great benefit in having a prepaid account when rebuilding credit.

How it Works

A prepaid credit card works like the traditional cards that might have put you on shaky ground prior to your bankruptcy – with a big catch.  The spending limit that is set for your prepaid card is determined by a deposit that you make with the bank that issues your credit card.  For example, if you deposit $400 with the issuing bank, your credit limit or spending limit will be $400 – although some offers may match your deposit by extending an equal amount of credit – in which case the spending limit will be $800.  You will make payments on the purchases that you make each month just like you would with a traditional credit card (and be subject to the same penalties if you don’t repay responsibly, even though it is your own money that you are spending and thus, repaying).

Adding Points to Your FICO Score

Each time that you make a payment on your prepaid credit card balance, you will be rewarded with points added to your FICO score (although some cards report quarterly or four times each year).  You can also be penalized for paying late by having a new negative indication placed on your credit report, or receive a penalty if you exceed your available spending limit.  To add the most points possible when rebuilding your credit after bankruptcy, be sure to:

  • Make your payment before it is due each month. Allow ample time for your payment to arrive via U.S. Mail, or sign up for online bill pay.

Run a balance that is equal to one-third of your available credit line, paying off the entire balance above this amount each month. Credit card issuers want to see that you can manage credit, which is why it is important to show that you are using credit by running a balance and by not using an excess amount of your available credit. Never charge more than 50 percent of your available spending limit.  So, in a nutshell, if your available credit line is $800, never charge more than $400 each month, and always pay off everything over $275 or so.