Many of the credit card offers that appear on the website are from credit card companies from which Wise Bread receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This site does not include all credit card companies or all available credit card offers. Any opinions expressed are those of the author’s alone, and have not been reviewed, approved, endorsed, or provided by the issuer.
Wise Bread Picks
If you find yourself burdened with high-interest credit card debt, you might think that acquiring another credit card is the last thing you need. After all, having another card could lead to more temptation to spend and accumulate even more debt.
However, a specific type of credit card could actually help alleviate your financial situation—if used wisely. This type is known as a balance transfer card.
How Balance Transfer Cards Work
Balance transfer credit cards come with unique introductory offers that can be advantageous. Most of these cards provide a 0% APR for a period ranging from 12 to 21 months, allowing you to transfer balances without incurring interest during that time. However, be aware that some cards may charge a balance transfer fee, typically around 3% to 5% of the amount transferred.
For example, let’s say you have $10,000 in credit card debt at a 19% APR, and you’re making a monthly payment of 5% of your balance, which amounts to $500. At this rate, it would take you 25 months to pay off your debt, costing you $2,120 in interest.
Now, if you apply for a balance transfer card offering 0% APR for 21 months with a 5% balance transfer fee, you would start repayment with a total of $10,500 ($10,000 plus a $500 fee). Since you won’t be paying interest, you can continue your $500 monthly payments and eliminate your debt in 21 months, saving you both time and $2,120 in interest.
Tips for a Successful Balance Transfer
The example above illustrates why balance transfer cards are popular. While some may charge fees, the benefit of 0% APR for 12 to 21 months can significantly expedite your journey out of debt and lead to substantial savings.
According to Experian, Americans conduct between $35 to $40 billion in balance transfer activity each year. While this is beneficial for consumers, it can also lead to a cycle where individuals continually transfer the same debts to new cards.
Compare Offers
Since balance transfer cards have varying introductory offers, it’s essential to compare multiple options. Aim for a card that provides 0% APR for the duration needed to pay off your debt. Additionally, consider any fees, consumer perks, and rewards programs. However, be cautious of cards with rewards if you’re concerned about overspending.
Look for No Balance Transfer Fee
Seek out balance transfer cards that do not charge a transfer fee. Some cards waive this fee for balances transferred within the first 60 days, saving you 3% to 5% of your balance and allowing you to start paying down your debt immediately.
Stop Using Credit Cards
Once you’ve transferred your balances, it’s crucial to stop using credit cards altogether. Avoid using your new balance transfer card for purchases and refrain from using other credit cards to prevent accumulating more debt. Consider sticking to a cash budget or using a debit card to help manage your spending.
Create a Debt Repayment Plan
Finally, develop a debt payoff plan during your card’s introductory offer. Estimate how much you can afford to pay monthly and track your progress. If you can pay off your entire debt within the 0% APR period, ensure that your payment amount aligns with your income and expenses. Utilizing a debt repayment calculator can be beneficial.
Look for ways to cut spending, such as reducing grocery bills, dining out less, or limiting entertainment expenses. Consider uninstalling apps that encourage spending, making it harder to incur new debts. Redirect those savings toward paying off your credit card balance.
The Bottom Line
While acquiring another credit card may seem counterintuitive when in debt, a balance transfer card can be a strategic tool for saving money. Consider a 0% Intro APR credit card to expedite your debt repayment, but remember that changing your spending habits is essential for long-term financial health.
