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This time of year is always expensive. You may have your own way of dealing with the cost, but for some its just another layer to add to their already over-laden debt pile. I know, because I was one of these people during my 20s.
I have the opportunity today to bring your another brilliant contributed post all about credit cards at the case for avoided the never-ending “revolving credit” habit that so many of us have.
If this is something you want to ditch for 2018, then you could also give my *free* debt-freedom e-book a read.
In case you got into a habit to consolidate your existing credit card balance with a new one once the initial deal expires, it might be time to find another, long term solution. You should know that every time you apply for a consolidation credit card you get a hard search on your file, and if you don’t get accepted for the first offer, you might face further reductions of your credit score by making new applications. If you are switching from one credit card deal to the next each year, chances are you are barely surviving and are just keeping your head above the water. Take your financial future seriously, and look for long term solutions that will not only reschedule your debt, but eliminate it faster than your existing accounts.
Below you will find nine reasons why you shouldn’t switch to another credit card deal this year.
1. It Might Ruin Your Credit Rating
If you keep on applying for a new credit card every time your balance transfer deal ends, you will never build up a credit score that is good enough for a low interest loan or mortgage. Many people have had their loan and mortgage applications rejected because they had too many searches on their file. Even if you don’t take on a new debt, the credit card company will do a hard search on your account, and this means that your application is taken as if you took out an extra few thousand pounds of debt. If your budget is tight, you might be declined the offer, and end up paying your increased rate on your existing credit card. As an example, if you signed up for a zero percent balance transfer deal that lasts for 6 months, you will need to make another application before your credit score could recover.
2. You Could End Up Paying Hidden Fees
Many people make a mistake not reading the terms and conditions of their credit card application, and end up paying monthly fees that cost them more than the original credit interest. Just because you have transferred your credit card debt to another company, you will still need to make the minimum payment on time. What a lot of customers don’t know is that often the minimum payment barely covers the interest, therefore, they will have little or no chance of getting rid of the debt, and in some cases, they will increase it by incurring late fees or usage charges. Make sure you are aware of how much your new credit card deal will cost you before you make an application.
3. Transfer Fees
Another thing some customers are not aware of is that every time they change their credit card provider to avoid paying interest for an extra few months they add 3-7 percent on the top of their debt. Transfer fees are calculated by the credit card company based on the amount of credit. Therefore, if you have a credit card debt of £13,000, you might increase it to close to £14,000, by taking on a balance transfer deal. While banks often charge you a fee when you make the loan application as well, their flat interest rate without hidden fees makes more financial sense if you are aiming to clear your debt. Do you research and shop around.
4. You Will Only Put off Dealing with the Problem
The main problem with consolidating your credit cards with another deal is that you are simply putting off clearing your debt, instead of making a plan of dealing with the increasing capital amount you owe. It is hard for ordinary people without a financial education to calculate how much they pay off their debt each year, and how long it will take them to clear the balance. Fixed term consolidation agreements, however, give you the clarity and tell you exactly when you can stop paying back the amount you borrowed. With fixed term agreements, you can budget each month better, while credit cards can have unexpected charges and fees added on, so you can be up for a surprise.
5. You Could Get a Lower Rate on Loans
If your main goal is to become debt free in a few years and have more money to save each month, a credit card deal might not be for you. The repayments on credit cards first clear the interest, and your balance might not get cleared for decades. While you will need to pay interest from the first month after you take out a personal loan, the overall cost of credit will be much lower than if you use credit cards. Some personal loan providers allow you to pay off your balance early, without a settlement fee.
6. You Might Not Be Accepted for a New Mortgage
In case you would like to get on the property ladder, you should avoid making new applications for credit cards every time you need to start paying interest. Getting a new mortgage is harder than ever, and your outstanding balance will affect your chances of getting accepted for a low rate mortgage. Before you can think about getting your own place, you need to show your bank that you are trying to eliminate your credit card debt, instead of working the system to avoid paying interest.
7. Your Financial Situation Might Change
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While you can afford the repayments with no interest today, chances are if you lose your job or your hours get reduced you will struggle to meet the minimum monthly payment requirements, and build up late fees added to your balance. People often think short term when they take out credit cards, and forget about their long haul personal finance goals.
8. You Will End Up with More Debt than You Started with
In many cases, you will end up paying multiples of your original credit amount back. The longer it takes you to pay off your credit card balance the more you will end up paying the company. It is challenging to keep an eye on all the charges, fees, and interests added on your account, therefore, you will soon find yourself in much more debt than you started with, even if you stop spending on your card. If you would like to be in charge of your finances, you might be better off with a fixed rate loan account. Just make sure you do your research. The money saving expert has some sound advice here if you’re struggling. There are lots of companies out there who specialise in providing loans for consolidation, but you must be careful…check all the terms of the deal, and seek advice before taking on a big debt. Then, stop digging and DON’T ADD TO IT!
9. You Might Need a Money Management Plan
If you feel like you cannot afford your monthly repayments now, and you are constantly late with the installments, you should look for a long term solution, instead of a short term fix. Talk to a financial adviser to find out how you can manage your money better in the new year, and eliminate debt. A money management plan could help you see clearer about your finances and reduce the interest on your existing accounts. In some cases, you can get a payment holiday, or no interest, if you can prove that you cannot afford the monthly installments.
While many people jump from one credit card deal to the next zero percent balance transfer offer regularly, it doesn’t help them deal with the long term issue of debt. Instead of avoiding to pay interest and building up your balance, you need to find a solution to reduce your capital and rates at the same time. This will help you rebuild your credit score and make sound financial plans for the future, giving you a chance to get on the property ladder. Personal loans and secured fixed term finance deals help you budget better and eliminate debt faster.
I hope you found that post useful, have an amazing time off if you’re lucky to have it!
Now its your turn – what do you think about credit cards?
I look forward to reading your comments below. You can also join me in the free private facebook group.
Until next time,
Come and Join the Money-Medics!
Every week I'll send you something inspiring, useful and fun related to our favourite m-word.....MONEY! I look forward to "meeting" you. Love, Dr Nikki x