In 2017, one-in-four Americans say they’re thinking about money more than just about anything else. Does that sound like you? One of the best ways to clear some of your head space may be to pay down credit card debt. Less debt means fewer minimum payments, which means an easier time managing your day-to-day cash flow.
That’s not the only benefit of paying off credit card debt early either. With annual percentage rates (APRs) in excess of 15%, credit cards can cost you a big chunk of change in interest. Plus, high credit card balances can do big damage to your credit. (You can see the effect of your current balances by viewing two of your free credit scores, updated every 14 days, on Credit.com.)
A Big Trick for Paying Off Credit Card Debt
Paying off credit cards takes planning and discipline. But you can also use a few tricks to make the process easier.
One big trick to make paying off credit card debt both easier and faster is using 0% APR balance transfer offers. It’s a simple strategy that can save you hundreds, or even thousands, in interest, not to mention allows you to potentially pay off your debt sooner.
You’ve got to leverage the offer correctly, however. Here are the basic steps to using this strategy.
- Apply for a card with a 0% introductory APR offer on balance transfers.
- Move some or all of your balance from an interest-bearing card to the card with the 0% APR. (Wondering what card to use? You can view our picks for the best balance transfer cards here.)
- Pay down that card as quickly as you can.
- If the card still has a balance when the introductory offer is up, consider applying for another 0% introductory APR card, and transfer the balance again. (More on this in a minute.)
That’s the gist of the strategy. It’s a great option for those with credit high enough to qualify for 0% introductory APR offers. Before you dive in, though, read through these additional tips and tricks.
1. Watch the Balance Transfer Fees
First off, it’s essential that you look at and understand balance transfer fees. Most balance transfer deals come with an upfront fee that gets tacked onto your balance once you make the transfer. This is how credit card companies come out on top with balance transfer deals.
Many times, transferring the balance to the 0% interest card will still save you money. But that may not be the case if you’re transferring a relatively small balance or if you’ll pay off the debt quickly either way.
To know whether or not a balance transfer will save you money, you’ll need to calculate your break-even point. First, estimate how many months it will take you to pay off the transferrable balance. Then, figure out how much interest you’d pay in that period of time if you did not transfer the balance. Finally, calculate the total fee you’d pay on the balance transfer.
If the balance transfer fee is more than the interest you’d pay in your current situation, it’s not worth your while.
2. Keep Track of Timing
Because balance transfer deals typically last between six and 18 months, you’ll need to keep careful track of when each introductory offer ends. If you’re running multiple balance transfer offers to pay off a lot of debt, keep a spreadsheet of offer end dates, current APRs, and future APRs once the offer is up.
Have a look at your spreadsheet each month. When a card’s offer period is about to end, decide whether to roll the remaining balance to a new balance transfer deal, or to leave it where it’s at.
Remember, it’s in your best interest to pay your transferred debt off in full by the time the 0% introductory offers expires. While you could potentially move the debt to another balance-transfer credit card, you’ll likely have to pay another fee. Plus, you’ll incur another hard inquiry on your credit report, which could ding your credit score. That’s why the next step is particularly important.
3. Know Your Credit Situation
This debt payoff strategy won’t work for everyone. You’ll likely only qualify for good balance transfer deals if you have good credit in the first place. And it’s difficult to say for sure how this scheme will affect your score.
On one hand, the hard inquiries generated by additional credit card applications will ding your score. But having a higher overall credit limit will improve it. These two may balance one another out over time.
The key is to keep track of your credit score throughout this process. If your score isn’t currently high enough to qualify for a 0% introductory APR deal, you may want to take time to polish up your credit before you apply.
4. Don’t Add New Debt
The number one key to making this strategy work for you is to not add any new debt. If you can’t avoid temptation to spend because you now have more available credit, you’ll just add to your mountain of credit card debt. One option is to shred your cards, even if you don’t close your accounts. This makes it harder to impulse spend on those cards that now have no balance once you’ve completed the transfer.
As long as you keep from adding new debt and follow the steps outlined here, 2017 could be a great year for getting free from debt.