The Complete Guide To Paying Off Credit Card Debt With A Balance Transfer
Fighting fire with fire.
More than once, I’ve heard that phrase used to describe completing a balance transfer for the purpose of paying off credit card debt, and the people that said it were right.
Credit cards are a dangerous thing when used incorrectly. For most people, credit cards are easy to get, easy to use, and tough to pay off. The high interest rates (usually 15% – 23%) leaves you drowning in interest, barely touching the principal, paying thousands of dollars in interest each year.
But, if you’ve gotten yourself into some credit card debt, and are committed to paying it off, you have options. After all, paying off a credit card while still paying exorbitant interest rates is like trying to swim upstream, against the current. You can make progress, but it’s unbelievably hard.
Here are the most common ways to refinance credit card debt:
- A personal loan
- With home equity
- A Balance Transfer
Today, we’re going to fight fire with fire and talk about balance transfers: who they’re right for, what you need to do it successfully, and what to watch out for. Done correctly, regardless of you feelings about credit cards, you can save yourself a lot of time and frustrating by paying off debt after a balance transfer, rather than going the more traditional routes of a home equity loan or a personal loan.
How Much Is Your Credit Card Debt Costing You?
Credit card debt carries some of the highest interest rates of any type of debt, and is the undisputed “worst” type of debt to have. The average American family has more than $15,000 in credit card debt, and at a low estimated interest rate of 15%, a minimum payment of $400 and paying $400 extra each month towards the debt, that family would pay $5,367 in interest over the 51 months it would take to pay it off!
In order to understand just how advantageous a balance transfer can be for you, you need to first understand just how much that debt will cost you in interest, and how long it will take to pay it off.
You might be surprised at just how much interest you’ll be paying on your credit cards alone + how long it will take you to get out from underneath that credit card debt!
What Is A Balance Transfer?
A balance transfer is when you take the balance from one credit card (usually bearing a high interest rate) and transfer it to a newly opened credit card in exchange for a 0% interest rate for 12-15 months. This cuts down on the interest payments by hundreds or even thousands of dollars, and give yourself a set time frame to pay off the debt within.
Why Is A Balance Transfer a Good Option?
Utilizing a balance transfer over a route with a traditional bank is advantageous for several reasons:
- You don’t have to fill out tons of paperwork
- Very little income information required
- Instant, or very quick decision
- Huge interest rate deduction
As long as you have good or excellent credit, you can apply for and be approved for a new credit card within a few minutes, all online, without ever having to set foot in a bank. Credit card companies are required to be VERY transparent about the terms of the credit card, not only the interest rate, but any an all fees, the balance transfer terms, as well as any associated fees.
You can also get an interest rate advantage by completing a balance transfer, with most balance transfer interest rates hovering around 3%. Some may be larger, and you can even find some that are 0%, but 3% is pretty common. Let’s use $15,000 of credit card debt as the example and assume that you’ll be approved for the balance transfer credit card with a credit limit large enough to accommodate the $15,000 of debt.
In this case, you would pay a $450 fee for transferring your balance, well below the $5,367 in interest you were looking at.
If you choose the correct card, you can pay as little as 0% interest for 15 month, putting your payment right at $1,030 a month.
This is larger than the $400 minimum payment + $400 extra you were paying each month, but chances are you can find an extra $230 each month to put towards the payment! If you can’t, you should seriously look for ways to cut your budget for a few months, or put a few hours each week into making extra money. The other alternative is to transfer your $15,000 balance, continue to p pay $800 a month towards it, and then transfer the remaining $3,450 to another balance transfer credit card for a few months to continue paying off the debt without racking up interest!
The ease of application, ease of use, and lower interest make transferring a balance to pay off a credit card faster a really good option if you have systems in place to keep from falling into credit card debt again (I’ll get into those in a minute).
The Best Balance Transfer Credit Cards
There are some truly great offers out there right now to help you pay off credit card debt – even though that’s not what they’re designed for. These 0% for 15 month offers are supposed to entice you to open up a card and rack up large amount of debt on it so that the credit card company can make a killing charging you hundreds in interest each month.
But you can outsmart the system using these great balance transfer credit cards:
Barclaycard Arrival World MasterCard: 0% APR for 12 months on each balance transfer made within 45 days of account opening
Chase Slate: 0% APR for 15 months on balance transfers made within 60 days of account opening. $0 annual fee.
Citi Simplicity: 0% APR for 21 months on balance transfers made within 60 days of account opening. $0 annual fee, but a 3% balance transfer fee applies
Discover It Card: 0% APR on balance transfers for 18 months, $0 annual fee, and 3% balance transfer fee.