There’s an easy, legal way you can get out of paying interest on your credit card debt: Move it. Specifically, move that debt to a credit card that offers an introductory 0% interest period on balance transfers.
When you shift your balance to a 0% APR balance transfer credit card, your debt will stop accruing interest charges for a period of time, often a year or longer. That could save you hundreds of dollars, making more money available to pay down your debt more quickly.
Here’s what you should know before applying for a balance transfer credit card.
Balance transfer basics
For many, balance transfer credit cards — that is, cards with 0% balance transfer APR — are the most affordable and accessible way to pay down high-interest credit card debt. The 0% introductory rate is much lower than the typical APRs on other debt consolidation instruments, such as personal loans and home equity lines of credit. And because they’re unsecured, they don’t require collateral, such as a house or security deposit.
But these cards aren’t an option for everyone. Some caveats to consider:
- Credit requirement. You typically need good or excellent credit to qualify for balance transfer credit cards.
- Balance transfer fees. Most issuers charge a balance transfer fee — usually 3% of the transferred balance. Transfer a $2,000 debt, for example, and a 3% fee would come out to $60. Make sure your interest savings would at least be more than the amount of the fee before moving your debt.
- Limits: Your transfer limit is generally the same as your credit limit, with some exceptions. The problem is, you generally don’t know what your credit limit will be until you apply. If you have an especially large balance, but end up with a low limit, you may not be able to transfer your entire debt.
- No same-issuer transfers: If your debt is from Citi, for example, you can’t transfer it to another Citi card. The same goes for other issuers.
That said, a balance transfer credit card that fits your credit profile and debt situation could offer enormous value.
Suppose you have a $5,000 balance on a credit card with an 18% APR, and you want to pay it off over the course of 15 months. You’d save more than $470 if you were to transfer that balance to a card with 15 months of 0% balance transfer APR, assuming a 3% balance transfer fee and equal payments. Here’s what those savings might look like after five, 10 and 15 months:
|Months elapsed in repayment plan||Balance remaining (on 18% APR card)||Total interest accrued (on 18% APR card)||Balance remaining (on balance transfer card)||Total interest accrued (on balance transfer card)|
|Total interest accrued:||$620.83||$0|
|Net savings, assuming 3% balance transfer fee ($150):||$470.83|