Balance transfers are only a good option if you have discipline. This is essentially moving your existing high-interest credit card debt to a new credit card provider or line of credit facility with a lower interest rate. Many financial institutions will offer promotions which feature anywhere from 0%-5% interest on balance transfers of existing debt for a limited period of time. If used correctly, this is option can save you tons of interest considering the average credit card charges upwards of 20% on existing balances. Just remember to NEVER make a purchase with the card if you are using it to pay off a balance under a promotional interest rate. Any purchase made during the promotional period will incurr interest at the regular rate until the balance is paid off in full. The trick is to ensure you can pay off the balance before the 0% interest period expires.
Refinance Your Home
Another way of saying "refinance" is actually "remortgage". It entails either changing your mortgage terms with your existing provider or swapping your mortgage from one lender to another. The objective is to use increased equity from your home to pay off debts and get a lower interest rate than what you are currently paying. When negotiating this type of debt restructuring its important to make sure to check if there are any charges or additional fees for switching which can eat up the benefit of this strategy. Remortgaging to pay off unsecured debt is only a good option if you have borrowed the money for things like home renovations and repairs. Refinancing your home to pay out consumer debt is usually a bad idea unless you are planning to cut up your credit cards and change your spending habits!
Fixed Loan Consolidation
If you are having difficulty keeping up with your monthly debt repayment obligations, consolidation is the usually a viable option to consider. By consoldating lines of credit and/or credit card balances into a fixed loan you will not only reduce the amount on your monthly payments, but you will also have an amortization term that will tell you when your debt will be paid off in full.
Paying off Debt With Savings
This is my least favorite option, but in some cases it is the only one that works. If you've gotten yourself in over your head you will never get out of debt if you can only make the minimum payments on your credit cards. Under these circumstances you will be better off to use your savings to pay off debt, especially since the interest on savings accounts is always much less than the interest you pay on unsecured debt. If you are able to pay out all your consumer debt using your savings you can always set up a monthly auto-savings plan in the amount you were paying to your credit cards. By having it come out of your bank account automatically, you can replenish your savings over time.
The above four strategies are my suggestions on ways to maximize credit and manage your debt. Remember, debt is not your problem...it's either over-spending, over-borrowing, under-saving or all three that gets you into trouble!
It's important for me to say that taking on new debt to pay off old debt is a strategy for people that are ready to take responsibility for their financial situation. Trying to borrow your way out of debt without making a decision to discipline yourself could possibly lead to even greater financial difficulties down the road. You need to change your habits around borrowing, spending, saving and investing to truly get on top of your finances and live free from financial worry and anxiety.
In closing, here's a great quote to inspire you:
"We must all suffer from one of two pains: the pain of discipline or the pain of regret.
The difference is discipline weighs ounces while regret weighs tons." ~ Jim Rohn