If you have high-interest credit card debt, paying off what
you owe can be a huge challenge. The higher the interest rate is, the less each
payment reduces your balance – not much money goes to principal when you have
to cover hefty finance charges.
The good news is that there's a simple option that could
make repaying credit cards easier and cheaper: a balance transfer. Follow these
eight steps to do it right.
1. Decide what debt you want to transfer
First, figure out what credit card debts you want to
transfer to another card. This helps you see how large your balance transfer
credit line needs to be. If you hope to transfer debt from two cards with a
$1,500 balance and a $1,000 balance, you need a credit line of at least $2,500
on your balance transfer card.
2. Explore balance transfer credit cards
There are many balance transfer cards on the market.
Research your options and look for cards offering 0% introductory promotional
rates. Pay attention to qualifying requirements, what credit lines the card
issuers generally offer to new customers, and any transfer fees.
3. Compare offers
Once you've compiled a list of balance transfer credit
cards, see which one provides you with the best deal. For example, one card may
have a 3% balance transfer fee and offer you 12 months at 0%, while another has
a 4% fee, but offers you 15 months at 0%. If it will take you a little bit
longer to pay off what you owe, you may prefer the second card, even with the
slightly higher up-front cost.
4. Have a repayment plan
Be sure you can pay off the balance before the promotional
0% rate ends. Otherwise, you could get stuck with a high interest rate on any
remaining balance. And don't assume you can just transfer the balance again.
Make a payoff plan and see what, if any, balance will remain to make sure a
balance transfer is worthwhile.
For example, say you want to transfer $5,000 worth of debt
to your balance transfer card and will have 12 months to pay it off before your
0% rate expires. You want a payoff plan in which you pay $416 per month so your
balance goes to $0 before you're charged interest.
If you can only pay $50 per month, you'd have a $4,400
balance at 12 months. If the balance transfer card has a higher interest rate
than your old one did and you pay that higher rate on a $4,400 balance for a
long time, you may be better off not transferring the balance. You might
instead look into debt-refinancing alternatives such as a personal loan that
offers a longer repayment timeline.
5. Apply for a new card
Once you have a payoff plan and are confident a balance
transfer makes sense, apply for the credit card offering the best rates and
terms. You can likely submit your application online and get an answer almost
6. Transfer your balance within the required time frame
Typically, you're eligible for a 0% promotional rate only
for balances transferred within a short time after opening your account, such
as within 30 to 90 days. Get the balance transferred over in time. Your card company
will provide details on the process.
7. Automate your payments
Once you've transferred the balance, set up automatic
monthly payments for the amount necessary to pay down your debt before the 0%
rate expires (or the amount you decided you could afford). That way, you're
sure to stay on track.
8. Use your old cards carefully
Finally, once you've freed up your credit on the old cards
by transferring the balance, try to avoid creating new debt with them. You
ideally shouldn't charge more than you can pay off at the end of the month.
Follow these eight steps, and hopefully your balance
transfer can go a long way toward helping you become debt-free soon.
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