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Wise choice of bread
If you have high-interest credit card debt, you may think that another credit card is the last thing you need. In the end, another card will only leave you with more open credit, which simply means more temptation to spend and accumulate even more debt.
But certain type credit card debt can help in your situation – if you use it correctly. This type of card is a balance transfer card.
How balance transfer cards work
Each balance transfer credit card has its own unique introductory offer that you can use to your advantage. Most of them offer 0% APR for 12 to 21 months, which means you won’t pay any interest on transferred balances during that time. However, some balance transfer cards charge a balance transfer fee, which is usually 3% or 5% of the balance you are transferring.
To illustrate this, let’s imagine for a moment that you have $10,000 in credit card debt at 19% per annum and you are currently making a payment of 5% of your balance, or $500 per month. At this rate, it will take 25 months to pay off your debt, during which time you will fork out more than $2,120 in interest.
Now let’s say you apply for a balance transfer card that gives you 0% APR for 21 months in exchange for a 5% balance transfer fee. Once you have transferred your entire balance and added the fee, you will start paying off your $10,500 debt ($10,000 plus the $500 balance transfer fee).
However, the fact that you pay no interest means that you can keep paying $500 per month and pay off the entire balance with zero interest within 21 months. In other words, your balance transfer card can cut your repayment term by up to four months. as well as save $2,120 in interest. (See also: Here’s what a balance transfer does to your credit)
Tips for Successful Balance Transfer
The above example shows why balance transfer cards are so popular. Sure, some of them charge a balance transfer fee, but having 0% APR for 12 to 21 months can help you pay off debt faster and save thousands of dollars.
Experian estimates that Americans make between $35 billion and $40 billion in balance transfers each year. This is good news for consumers who take advantage of this, but it’s also a problem as many people get stuck in a situation where they transfer the same debts to new balance transfer cards every few years.
If your goal is to use a credit card with a balance transfer to get out of debt and stay out of debt, you need to set yourself up for success. Here is how you can do it.
Compare Offers
Since each balance transfer card has its own introductory offers, you need to check more than one. Ideally, you’ll be content with a balance transfer credit card that gives you 0% interest until you need to pay off all (or most) of your debt.
Other factors to consider when using balance transfer cards include any fees they charge, consumer benefits and protections, and rewards programs. However, beware of signing up for balance transfer cards with reward programs if you’re worried they’ll incentivize you to spend. The purpose of a balance transfer card is to pay off debt, not accumulate more.
Look for cards that don’t charge a balance transfer fee
Watch out for balance transfer cards that charge no fees. While most of them charge a balance transfer fee upfront, some of them skip this balance transfer fee for the first 60 days. By avoiding this fee, you typically save between 3% and 5% of your balance, which can help you start paying off your balances right away.
Stop using credit cards
No matter what you do, stop using credit cards after you’ve transferred your balances to a card that offers zero interest for a limited time. You won’t want to use your new card to transfer your balance for purchases as the goal is to pay off your debt, but you should also avoid using other credit cards as you can easily accumulate even more debt and wipe out any progress you’ve made. . .
While you are in debt repayment mode, you should stick to a cash budget or use a debit card instead of a credit card. This way you won’t “accidentally” accumulate new credit card balances that you can’t afford to pay off.
Create a debt repayment plan
Finally, be sure to create some sort of debt repayment plan for how you will pay off your debt during your card’s introductory offer. You need to evaluate how much you can afford to pay each month and figure out how much debt you will eventually pay off if you stick to the schedule. If you manage to pay off all your debt over and above your card’s 0% APR offer with a certain payment amount, you should determine if this figure is possible with your monthly income and expenses. And using a good debt repayment calculator can help a lot.
You can also look for ways to cut down on your expenses and bills so you can put more money into your credit card balance each month. Start with the small things in your budget—things like spending on groceries and restaurants, spending on entertainment, or making regular trips to your favorite department store. Also consider removing any apps from your phone that regularly make you spend money, whether it’s Instacart, DoorDash, or Amazon. Make it harder to spend money and you’ll be more likely to save money over time. And these savings can be used to pay off your debts until they are paid.
essence
Another credit card may seem like the last thing you might need if you’re in debt, but a balance transfer card can help you save money with the right mindset. Consider an Intro APR credit card with 0% interest to pay off your debt faster, but don’t forget that you’ll have to change your spending if you want to get out of—and stay out of—debt.
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