Even if you meticulously budget and map out your monthly finances, you will still likely find yourself in credit card debt from time to time. Such instances may be the result of using a card while on vacation, or when you purchase a new computer and books for the start of a new school year.
Chances are also high that if you’ve also had the same card for an extended period of time, and you’re likely paying an interest rate anywhere from 15 percent to 30 percent, depending on your credit score. Depending on the scope of your spending, you might not be able to pay off the balance in full when the next monthly statement rolls around.
While you can always choose to make the monthly payments, ideally higher than the minimum, another option exists to help you eliminate debt faster. A credit balance transfer is a potential solution that can be used to avoid high interest and more. But you will need to use this method carefully because it doesn’t truly eliminate bad spending habits.
What Is a Credit Transfer?
A credit transfer is when you look to open a new credit card that offers a 0 percent or very low interest rate for an extended period time, in addition to no additional fees to transfer an existing balance.
Think of this process as having a new credit card pay for your existing debt. By transferring debt to a card that won’t charge interest for another 12, 14 or 16 months, you can quickly knock out debt because all of your payments are going toward the balance and not interest charges.
You’ll want to calculate how long it will take for you knock out the debt. Larger balances will require more time, but if you have a modest amount of money owed and can pay it off in a year, transferring your debt might make financial sense and you can save money in the process.
How to Proceed
Once you open up a new line of credit, transfer your balance and immediately chip away. You’ll want to ensure you eliminate the debt before the introductory period expires, otherwise you’ll find yourself in the same predicament as before.
As for your old card, avoid canceling it because it can hurt your credit score. Instead, you’ll want to use it, but sparingly and for small purchases, such as gas. If you keep the purchases small, you shouldn’t have trouble paying those off in full every month.
You’ll also need self-discipline with the new card. Don’t make large purchases otherwise you’ll start the debt cycle over. And if you aren’t careful, you’ll then have two cards with high debt instead of one.
Credit card balance transfers can help chip at away at debt quickly but use with caution.