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Have you ever done this:
Used your Visa to pay your Mastercard or maybe used your Visa to pay a department, retail or gas credit card?
Will this type of money management technique solve your financial difficulties?
- At best, this technique might give you temporary relief and only if the Visa has a lower interest rate than the MasterCard or any other credit card you might be making a payment on.
Using one credit card to make a payment on another is a very common thing for people to do when they get into financial difficulty.
- They use one form of credit to finance another. Sometimes without considering the consequences.
If the form of credit you are using to make payments on another type of credit has higher interest rates this technique will lead to more serious financial difficulty:
- This situation usually occurs if someone takes cash advances from their credit card and then uses the money to make a payment on another credit card. Interest begins from the moment you take the cash advance, their is no grace period for cash advances, and cash advances are usually borrowed at a higher rate of interest than the interest rate that is charged for making purchases on the same credit card.
Is there ever a time someone should think about using this technique?
- Taking cash advances from a credit card to pay another credit card is never recommended as it is a much more expensive form of borrowing.
- Only consider doing this type of borrowing if you are able to borrow at a much lower interest rate than the one you currently have.
Watch out for those promotional rates on credit cards!
- Many people send for the promotional offers on credit cards thinking they will transfer the balances of their more expensive credit cards to the lower interest cards.
- Problem is most of the lower rates are only introductory rates for a short period of time. Sometimes when the promotional period is over the interest rates on the new cards are higher than the interest rates of the cards where the balances were transferred from.
Be careful when considering using this money management technique,
- read the fine print, know what you are getting into so you don't experience a shock down the road and end up paying hundreds or thousands of dollars more in interest.
