Should You Apply for a Credit Card to Get Out of Debt?July 24, 2011 - 8:32 am
Many consumers are facing debts they can barely keep up with and many of those debts are associated with credit cards. As more people are looking for ways to eliminate their debt problems, some will consider turning to credit cards as a solution for debt relief.
There are many considerations to make before applying for a credit card, let alone applying for a card when you are in debt. You need to ask yourself why you want to add an additional burden to the debt you already have and actually sit and write out a plan for eliminating those debts.
Exploring Your Options
The first consideration you need to make about applying for a credit card to get out of debt is whether or not you have the necessary credit standing you will need to get a suitable credit card. If you have already paid bills late or missed payments entirely, you may not even be able to get approval on a new credit card.
If your credit standing is still good and approval is not a problem, you need to make sure that the credit limit you are offered is something worth working with. If you plan to eliminate $3000 worth of creditor debt but can only get approved for a credit card with a $1500 limit, you may just be adding wood to the fire. The temptation to spend more may be too great.
If you have good credit and can get a sufficient credit card limit, you still need to consider the plan of attack. If you do not have a reasonable plan for using a credit card to pay off existing balances, you should not move forward until you do.
The Balance Transfer Advantage Has Drawbacks
When most people apply for a credit card to help with debt, they apply for a balance transfer card. This card type allows balances from other credit cards to be transferred to the new card and most companies offer special introductory incentives such as 0% interest for the first six months.
While these incentives can eliminate other debts effectively, you have to know how you’ll repay the full balance within the introductory time period. You have to have a repayment plan in place to ensure you will not miss the deadline and start racking up additional finance charges. While the concept of balance transfer credit cards may seem ideal to your situation, it will only cause more financial problems if you can’t pay up as agreed.
If you can successfully apply for a balance transfer credit card and get approval, make sure you use it wisely. It can be effective tool for eliminating other credit card debts and reducing your credit ratios but it requires discipline and a commitment to become and stay debt free.
If you are looking for a balance transfer card, make sure you read the details of the fine print and compare several cards before making your selection. Most cards charge transfer fees based on a percentage of the amounts being transferred to the new card. Consider the fees and the incentives on each card before signing the agreement. The more you know about your balance transfer card, the more likely you are to find success with your debt elimination plans.