Stop the Bleeding – Transfer your credit card debt

We recently talked about understanding your credit score – if you missed it, click here to get your free credit score from Credit Karma. Once you have that, you can start thinking about ways to strategically manage credit card debt.

If you have a good credit score (700+), you can consider applying for a credit card with 0% interest on balance transfers for an introductory period of time (10, 12, 18, 24 months). If you are approved, you can then move your higher interest credit card debt over to the 0% interest card – stopping the bleeding of interest.

There are some *VERY* important points to consider before making this move:

  • A lot of cards don’t offer free balance transfers, but rather 0% interest rate on balance transfers. That means that the new credit card will charge you a transfer fee to move the balance from your high interest rate card to the 0% interest rate card. Most balance transfer fees are 3-5% of the balance being transferred, so if you have a lot of high interest credit card debt, it may be worth the balance transfer fee as this would be less than the interest payment on your existing balance on your high interest rate credit card.

 

  • The interest rate will only be 0% for a certain period of time… make sure you read the fine print. The way many of these 0% interest on balance transfer offers work is that after the 0% introductory period ends, the interest rate skyrockets and any outstanding balance remaining on the account becomes subject to that interest rate retroactively. For let’s say, for example, you transfer a balance of $10,000 to a card with a 12-month 0% interest rate on balance transfers – the APR after the 12 months is set at 20% (pretty high but you get to freeze your debt so you sign up). Over the course of the twelve month period, you pay off $6,000 – you rockstar! So that means that after a year, you have an outstanding balance of $4,000. But once that introductory period of twelve months is over, your outstanding balance will be $4,000 (principal) + $800 (interest) = $4800. And interest will continue to accrue – don’t forget how that nasty APR monster works.

 

  • If you don’t plan on paying off the transferred balance in full by the time the 0% interest period expires, you should consider your options for transferring that balance on to another card with a similar offer for 0% interest on balance transfers. But again, you should consider the point above regarding transfer fees and any effect opening a new credit card would have on your credit score.

All  important things to keep in mind when strategically tackling your high interest credit card debt. By making this move, in the case of my own ridiculous credit card debt, I was able to save thousands of dollars… literally, thousands. Well worth the time and effort. We will talk about what you can do if your credit score is too low for this strategy in the coming days – stay tuned!

Sincerely yours in harmonious fun and fiscal responsibility,

Rachel

 

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