Evaluate Credit Card Balance Transfer Options and Consolidate Debt

May 7th 2016

The arrival of credit cards offering teaser annual rates and sign-up deals has led to an influx of consumers attempting to use such cards to consolidate their debt via balance transfers. If you have loans and debts that you can’t fully pay off at the moment, you can save a lot of money by consolidating your debt with a balance transfer to your new credit card. Before you do so, you should consider your debt and financial situation, in addition to the credit card’s balance transfer options.

What to Look for When Evaluating Credit Card Balance Transfer Options

There are several factors that go into choosing a good credit card for consolidating debt. The most important ones include how long the introductory period is, the regular interest rate and balance transfer fees. It requires careful calculation and a personal financial strategy to ensure that you save the most money possible.

The Introductory Period

Usually between six and 18 months, the teaser annual percentage rates (APR) offered by the credit card company give some time for you to catch up on debt; this ensures that the balance transfer amount doesn’t rise off interest. To get longer periods, you will need a decent credit score. Obviously, sign up for the longest 0% APR period you possibly can.

The Regular Rate

If you can’t repay your entire debt before the teaser rate expires, you should seriously consider the actual annual percentage rate of the card. The lower it is, the better. If you still plan to have thousands of dollars leftover on your debt after the intro period, choosing a card that gives you a lower rate is crucial.

The Balance Transfer Fee

Nowadays, enough cards offer 0% introductory APRs that you can simply choose the lowest balance transfer fee. Most range between 3% and 5%. Hence, a balance transfer of $6,000 could cost you anywhere from $180 to $300. Some cards, though, have no balance transfer fee, as well as a 0% introductory APR; if you can get this card, go for it.

User Beware

While balance transfer credit cards offer a solid opportunity to save money and help you manage debt, there are some disadvantages and dangers to getting one.

Interest Rates on Other Cards

Consolidating your debt saves you money as long as you are disciplined. However, if you are above one-fourth of your credit limit, your interest rates will rise. Do be aware of this. Transfer your debts with the highest rates first, especially if you can’t consolidate your debt all onto one card.

If Your Debt Is Long-Term…

Sometimes debt can be overwhelming. If you are in such a situation, don’t go for a card with a promotional rate since regular APRs are usually high once they begin. Get a low interest rate card; these usually offer no thrills and no rewards, but you won’t see your balance skyrocket from interest accumulation. After five to ten years of repayment, this will save you money.

Can You Limit Use of the New Card?

While it may be tempting to take advantage of the teaser rate offered by your new credit card, can you limit spending on it? A new credit card with a 0% APR period of 12 months is not a license to have fun for a year. If you are able to limit spending, it will make paying off that debt before the sign-up deal ends easier.

Before You Consolidate Your Debt

There are a few things to take into account before signing up for that new credit card. It’s crucial to have a financial game plan; if not, you could just end up in more debt. A balance transfer gives your more time, but that time is useless unless you attack your debt.

What’s Your Debt Total?

How much, altogether, do you have? Figure this out to the dollar. If that number is high, you may not be able to transfer the whole debt to the new card due to credit limits.

How Much Can You Pay Each Month?

If you transfer your debt to a credit card, how long will it take you to pay off that amount? Be sure to factor in all your monthly expenses and come up with a realistic number. Figure out exactly how many months it will take you.

Making the Calculations
Through calculation, you should now be able to see how long it will take you to pay off that debt. Remember to add in the cost of the balance transfer. If that time exceeds the length of a 0% or low introductory APR period, calculate the added interest into the equation. Use a balance transfer calculator if the math makes your head hurt. While it’s advised to pay all your debt off as quickly as possible, note that this low interest period does save you a good deal of money, especially if you limit your spending on it. Use the time as an opportunity to cut down on debt, not spend more.

Learning how to evaluate credit card balance transfers and consolidate your debt offers you breathing room and also gives you the chance to save a significant amount of cash. When you register for such a credit card, consider the annual percentage rate, the length of the promotional period and balance transfer fees. Also, you should calculate how long it will take you to repay the total debt. To get rid of your debt, you need to make smart financial decisions and have self-discipline. Debt-free life begins and ends with healthy spending.

Sources:

https://www.discover.com/credit-cards/resources/credit-card-consolidation.shtml

http://www.nerdwallet.com/balance-transfer-credit-cards

http://www.consolidatedcredit.org/debt-management/debt-consolidation/what/

https://www.wellsfargo.com/credit_center/manage_credit/fix_credit/debt_consolidation

http://money.usnews.com/money/blogs/my-money/2013/04/12/4-debt-consolidation-traps-to-avoid

http://www.creditcards.com/credit-card-news/help/9-things-you-should-know-about-balance-transfers-6000.php

http://www.creditcards.com/balance-transfer.php

http://www.bankrate.com/finance/debt/6-ways-pay-credit-card-debt-1.aspx

http://www.bankrate.com/finance/credit-cards/credit-card-balance-transfer-1.aspx

https://www.bankofamerica.com/credit-cards/education/balance-transfer-tips.go

http://www.investopedia.com/articles/pf/07/cut-credit-debt.asp

http://www.cardhub.com/edu/credit-card-bill-of-rights/

http://www.nerdwallet.com/blog/top-credit-cards/no-balance-transfer-fee-credit-cards/

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