A balance transfer can be a powerful tool for managing credit card debt. By moving high-interest balances to a card with a lower or zero percent introductory APR, you can save hundreds or even thousands in interest charges.
How Balance Transfers Work
When you perform a balance transfer, you move existing debt from one or more credit cards to a new card, typically one offering a promotional 0% APR period. This period usually lasts 12 to 21 months, giving you time to pay down debt without accruing interest.
The True Cost of Balance Transfers
Most balance transfer cards charge a fee of 3% to 5% of the transferred amount. It’s crucial to calculate whether the interest savings outweigh this fee. For large balances with high interest rates, the math almost always works in your favor.
Creating a Payoff Strategy
Divide your total transferred balance by the number of months in your promotional period. This gives you the monthly payment needed to eliminate the debt before the regular APR kicks in. Stick to this plan religiously to maximize the benefit.
Common Mistakes to Avoid
Don’t continue spending on the old card after transferring its balance. Avoid making only minimum payments during the promotional period. And always make payments on time, as a single late payment can void your promotional rate entirely.
