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photo credit: s,B - Michael Brenton-King of The Wachoo Wachoo

I’m sure you’ve read everywhere, as I have, that having a credit card – or worst yet, adding a second card *gasp* – will cripple any steps towards financial freedom. However, that being said (and believe me, I do agree), one case exists where credit cards might actually help you on your road to recovery. What am I talking about? Credit cards which offer 0% APR on initial balance transfers.

With the state of the economy such as it is these days, credit card companies are itching for new business and they’ll get it any way they can – one such way is by offering new customers 0% interest on any balances they transfer from an old card for a certain initial period (many in the 12-15 month range!). Some companies will even deposit cash right into your checking account to pay off previous balances (see using 0% APR to pay off all of your high interest debt)!

Why is this helpful?

If you’re the typical recent grad – as I know many of you are – you’ve undoubtedly wracked up a bit of debt in the months since graduation (or you can expect to, if you haven’t gotten your diploma yet); moving, new furniture, car & student loan payments, a new business wardrobe – these things aren’t cheap. Well, look at it this way, if you put any of those items on a credit card where the APR is even 10% (and most interest rates aren’t even that low; I think the national average right now is hovering around 14%), you’re paying an additional $10 for every $100 in debt each month! With those kinds of numbers, paying off any decent amount of debt can be very tough (next to impossible, really, on an entry-level salary). But, eliminate that interest for a full year (or more) and suddenly tackling your debt seems much more obtainable.

Buyer Beware:

While signing up for a credit card with 0% APR on balance transfers is certainly taking a worthwhile step in the right direction, there are a few things you need to look out for. First, transfer fees – even though the interest rate is zero, make sure you read the fine print. Credit card companies often charge a percentage of the amount transferred as a fee for the transaction. You want to make sure there is either no fee at all or that any fees in place have a cap to them (say $5-$75) and not just a percentage of the amount transferred, so you’re not overpaying. If the card you first choose has a transfer fee attached to it, don’t be afraid to keep looking – there are plenty of offers out there which waive the transaction fee all together; or for the first transfer at least.

Also, remember that having more than two credit cards open at once will damage your credit score, making long-term financial goals – like a new car, house, or wedding – much harder to obtain. So, if the new card is your third (or even your second), you want to be sure and close any old cards as soon as the transfer of your balance is complete.

Technorati Tags: credit cards, debt, debt reduction, college

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