You call a credit card centre and seek information about their line of cards. You want to know whether it would make more sense to pursue a low fixed rate credit card or if you should look into a card that features a 12 month 0% APR introductory offer to pay off a higher interest credit card.
The credit card company may well advise you to get the card that would be in their best interest - not yours.
You might think that the answer to this question should be an easy one. However, that doesn't take into account the various shades and colours of your credit habits.
Low Fixed Interest
This type of card will make perfect sense for someone who typically pays off their credit quickly. Typically speaking this credit user will not allow 60 days to pass before having the entire past due amount repaid.
In this scenario it makes perfect sense to choose a low fixed rate because the user will rarely need to pay off excessive interest fees. This type of user generally refuses to allow accumulated past due amounts.
Zero Interest for a Year
This type of card provides a window of opportunity for a user of credit that happens to have a large overdue amount. This offer could save you hundreds of pounds during the life of the offer depending entirely on your accumulated debt load.
One way that credit card companies hope to offset their loss of revenue through interest is by encouraging you to use your new card while enjoying the benefits of zero interest on the transferred balance. However, unless they state that new purchases also enjoy a zero interest offer then it would be wise not to use the card for new purchases during the year you are paying off the principle on your credit card debt.
What users typically do not take into account is that until the transferred debt is completely repaid, any new purchases are completely subjected to higher interest rates. The lender will not consider using your monthly payment to pay the new debt off until the transferred debt is paid in full.
What this means is that the new debt accumulates up to 24% in interest every year. If it takes you eight years to pay off a significant debt transfer you will likely pay two-three times for every item you purchased after accepting the zero interest for a year offer - and remember the offer is only good for twelve months.
A Solution?
The solution may well be to exercise both options. A low fixed interest credit card for new purchases and a zero interest for a year offer to pay down debt more quickly.
The difficulty with this scenario is that it requires a discipline that many of us simply do not have. That discipline, or course, is to refuse to go further into debt. A zero interest offer looks great. However, if you're spending remains beyond your monthly means to repay then you may simply be accepting the offer as a method of continuing bad spending habits.
To Conclude
Only you know your financial situation, but by taking a few steps to ascertain your spending habits, financial goals and objectives as well as commitment to repay outstanding debt, you have the best chance of discovering a course of action that assists in both present and future financial success.
Author Bio:
Written by Tim Day for creditmarket.co.uk a UK personal finance directory including information and resources relating to credit reports and bad credit credit cards.
