The Complete Guide To Paying Off Credit Card Debt With A Balance Transfer

Fighting fire with fire.

More than once, I’ve heard that phrase used to describe completing a balance transfer for the purpose of paying off credit card debt, and the people that said it were right.

Credit cards are a dangerous thing when used incorrectly.  For most people, credit cards are easy to get, easy to use, and tough to pay off. The high interest rates (usually 15% – 23%) leaves you drowning in interest, barely touching the principal, paying thousands of dollars in interest each year.

But, if you’ve gotten yourself into some credit card debt, and are committed to paying it off, you have options.  After all, paying off a credit card while still paying exorbitant interest rates is like trying to swim upstream, against the current.  You can make progress, but it’s unbelievably hard.

{12 Things To Remember When Paying Off Debt Gets Hard}

Here are the most common ways to refinance credit card debt:

• A personal loan
• With home equity
• A Balance Transfer

Today, we’re going to fight fire with fire and talk about balance transfers: who they’re right for, what you need to do it successfully, and what to watch out for.  Done correctly, regardless of you feelings about credit cards, you can save yourself a lot of time and frustrating by paying off debt after a balance transfer, rather than going the more traditional routes of a home equity loan or a personal loan.

How Much Is Your Credit Card Debt Costing You?

Credit card debt carries some of the highest interest rates of any type of debt, and is the undisputed “worst” type of debt to have.  The average American family has more than $15,000 in credit card debt, and at a low estimated interest rate of 15%, a minimum payment of $400 and paying $400 extra each month towards the debt, that family would pay $5,367 in interest over the 51 months it would take to pay it off!

In order to understand just how advantageous a balance transfer can be for you, you need to first understand just how much that debt will cost you in interest, and how long it will take to pay it off.

Try using this handy calculator from Credit Karma to find out that information.

You might be surprised at just how much interest you’ll be paying on your credit cards alone + how long it will take you to get out from underneath that credit card debt!

What Is A Balance Transfer?

A balance transfer is when you take the balance from one credit card (usually bearing a high interest rate) and transfer it to a newly opened credit card in exchange for a 0% interest rate for 12-15 months.  This cuts down on the interest payments by hundreds or even thousands of dollars, and give yourself a set time frame to pay off the debt within.

Why Is A Balance Transfer a Good Option?

Utilizing a balance transfer over a route with a traditional bank is advantageous for several reasons:

• You don’t have to fill out tons of paperwork
• Very little income information required
• Instant, or very quick decision
• Huge interest rate deduction

As long as you have good or excellent credit, you can apply for and be approved for a new credit card within a few minutes, all online, without ever having to set foot in a bank.  Credit card companies are required to be VERY transparent about the terms of the credit card, not only the interest rate, but any an all fees, the balance transfer terms, as well as any associated fees.

You can also get an interest rate advantage by completing a balance transfer, with most balance transfer interest rates hovering around 3%.  Some may be larger, and you can even find some that are 0%, but 3% is pretty common.  Let’s use $15,000 of credit card debt as the example and assume that you’ll be approved for the balance transfer credit card with a credit limit large enough to accommodate the $15,000 of debt.

In this case, you would pay a $450 fee for transferring your balance, well below the $5,367 in interest you were looking at.

If you choose the correct card, you can pay as little as 0% interest for 15 month, putting your payment right at $1,030 a month.

This is larger than the $400 minimum payment + $400 extra you were paying each month, but chances are you can find an extra $230 each  month to put towards the payment!  If you can’t, you should seriously look for ways to cut your budget for a few months, or put a few hours each week into making extra money.  The other alternative is to transfer your $15,000 balance, continue to p pay $800 a month towards it, and then transfer the remaining $3,450 to another balance transfer credit card for a few months to continue paying off the debt without racking up interest!

The ease of application, ease of use, and lower interest make transferring a balance to pay off a credit card faster a really good option if you have systems in place to keep from falling into credit card debt again (I’ll get into those in a minute).

The Best Balance Transfer Credit Cards

There are some truly great offers out there right now to help you pay off credit card debt – even though that’s not what they’re designed for.  These 0% for 15 month offers are supposed to entice you to open up a card and rack up large amount of debt on it so that the credit card company can make a killing charging you hundreds in interest each month.

But you can outsmart the system using these great balance transfer credit cards:

Barclaycard Arrival World MasterCard: 0% APR for 12 months on each balance transfer made within 45 days of account opening

Chase Slate: 0% APR for 15 months on balance transfers made within 60 days of account opening.  $0 annual fee.

Citi Simplicity: 0% APR for 21 months on balance transfers made within 60 days of account opening.  $0 annual fee, but a 3% balance transfer fee applies

Discover It Card: 0% APR on balance transfers for 18 months, $0 annual fee, and 3% balance transfer fee.

More: https://www.nerdwallet.com/blog/top-credit-cards/nerdwallets-best-balance-transfer-credit-cards/

What To Look Out For With A Balance Transfer?

Late Payments

If you decide that a balance transfer is right for you, it is important to make 100% sure that you can make your payments on time.  Not only can a single late payment cause your credit score to nosedive, it can have these other consequences:

• A Late Payment Fee
• Losing the 0% Intro purchase APR
• A penalty APR
• Losing your 0% balance transfer APR

The bottom line is that if you make a late payment, you risk losing every single promotional offer the credit card gave you, that is supposed to give you a leg up in paying off your debt, so don’t do it!

The Balance Transfer Fee

Balance transfer fees are typically 3%, but you can find offers that have a 0% balance transfer fee.  I listed a few of them above, and if you have excellent credit you should consider the 0% offers before the 3% offers.  There are so many balance transfer credit cards out there today that you should not even bother with a balance transfer fee greater than 3%.

The Balance Transfer Period

In order to find the right card for you, pay attention to the balance transfer period.  This is the length of time your balance transfer will remain at 0% interest.  Use this time period to calculate the monthly payment you need to make in order to pay off the debt before the interest rate rises, and then choose the credit card accordingly.

The Balance Transfer Interest Rate

Yes, even thought offers for 0% balance transfer interest rates abound, there are many offers with interest greater than that.  If your credit is good or excellent, don’t bother with offers that aren’t 0%.

The Monthly Payment

Finally, before you complete the application, be absolutely sure that you can make the monthly payment on time, every time, and in a big enough amount that you can pay off the debt before the balance transfer period expires.  A late or missed payment can completely undo what you’re trying to accomplish by completing a balance transfer.

Debt Recidivism Avoidance Systems

What is debt recidivism?  It’s getting back into debt again after paying it off, and it’s the worst feeling in the world.  I’ve been there and it sucks when you’ve worked so hard to pay off debt, only to let your guard down and start spending wildly again.

Luckily, there are some simple things you can do to prevent this:

1. Take the credit cards out of your wallet
2. Don’t just throw them on the kitchen counter, lock them in your safe so they’re hard to get to.
3. Don’t allow online shopping sites to remember your credit card info

Consolidating credit card debt with a balance transfer can be an amazing tool.  As we saw in the example of $15,000 in debt, that simple act saved more than $5,000 over the course of 15 months.  That of course does not mean that it’s without risks.

But with proper planning and follow through, the benefits of credit card balance transfers definitely outweigh the risks.

This post may contain affiliate links.  See my disclosures for more information.

You May Also Like:

Which Way Should We Refinance Our Debt? Holiday Credit Card Debt? 6 Tips To Get Back On Track The Gift of Freedom: The Comprehensive Guide To Establishing Your Child’s Credit What The Heck Is Credit Card Churning? Maximize 2015 With the Perfect Credit Card – A Silver Review 11 Things You Should Know When Paying off Debt Gets Hard How My First Foray Into Credit Card Churning Went Horribly Wrong – And What I’ll Do Differently Next Time! How We’re Paying off $30,000 of Debt in 2015 – Part 1 My Everyday and Ordinary Credit Card Rewards Victory Should You Automate Your Credit Card Payment?