No regrets… it had to be done, but paying divorce lawyers left me with tens of thousands of dollars in credit card debt. Three years later I’m still paying, but I have been able to keep my interest rate low (at 0%) by taking advantage of balance transfer offers. I transferred again this week for another 21 months, and hope it will be the last time.
Compare balance transfer offers.
What is a balance transfer offer?
A balance transfer is basically paying off one credit card with another.
Between high interest rates and hefty fees, banks make a large profit from their credit card accounts and are always looking for new customers. A balance transfer offer is their way of getting you in the door for what they hope will be a long-term, profitable arrangement.
An example of a typical balance transfer promotion would be an offer of 0% interest for 18 months when you transfer the balance you carry on another credit card to the new card. If you carry a large balance with high interest the savings can be significant.
What does a balance transfer do for me?
The average American household held $15,762 in credit card debt in 2015 with an average APR (interest rate) of 13.93%, and they will pay over $183 each month in interest alone.
When you take advantage of a balance transfer offer to move your high interest credit card debt to a card offering 0% interest, you get to keep that $183 instead of paying it out to the bank as interest. You can either keep that extra money in your pocket or (hopefully) will use this extra money to pay down your debt faster.
If you’re like many newly divorced women, you’re living on much less income than you were when married. Getting rid of high interest credit card debt is a critical first step to getting yourself back on safe financial footing after divorce.
What’s the catch?
There’s really no ‘catch’ in these type deals but there are details of which you need to be aware and rules which need followed. Each offer will be different, so make sure to read the details of your particular offer. You need to know:
- The low interest rate is an ‘introductory rate’ only and after a certain amount of time will default to a higher interest rate. Make sure you know what your rate will be afterward and compare to what you have now. It may or may not be worth making the switch.
- You will pay a ‘balance transfer fee’ which is typically from 2-4% of the amount being transferred. For example, if the fee is 3% and a $10,000 balance is being transferred, you will be charged a fee of $300. A lot, but well worth it in exchange for the lower interest rate.
- Always pay on time. This is so important. Use bill pay through your bank to schedule automatic payments and set it to pay early. I have my payment set to pay a week early because I want to take no chances. Should you be late with payment even once, you’ll loose your low introductory rate.
- Most balance transfer offers apply the low interest rate to the amount transferred only. This means if you also use the card to make purchases, you may pay a higher interest on those purchases. To avoid this problem, I find it easiest to use a different card if I need to make a purchase, and I leave only the original balance transfer amount on the new card.
These are just examples. Always read the details of your agreement.
Is a balance transfer deal right for me?
Transfer of high-interest credit card debt to a card offering a much lower rate has the potential to save you hundreds of dollars a year, but is it the right move for you?
First, determine how much you would really be saving by making the switch. This depends on on how much debt you currently have, the interest rate being charged, and how long before you expect to pay it off. A balance transfer calculator can help you compare and determine how much you could save.
Also consider how you expect to use your new card. Can you resist the temptation to use your new line of credit to go shopping and run up more debt?
And finally, consider your credit rating. Most of these type deals require excellent credit history or your application won’t be approved by the bank.
Depending on how you answer these questions, you may want to consider other options, such as a personal loan or home equity loan.
Where can I find a balance transfer offer?
To find a balance transfer offer watch your mail or check out this list of offers found online.
Credit cards which you already own often include balance transfer offers with statements sent out monthly. Since you already own this bank’s credit card, you won’t need to apply and wait to be approved like you do with a new card, but they may not offer you the best deal.
Online lists are nice because you have the opportunity to compare cards and chat with other users who can help you understand terms and conditions of the deal.
Have you successfully used balance transfers in the past to quickly reduce your debt?