Balance Transfers

Balance transfers are a great way to knock down your interest rate, sometimes 10 to 15% or more than your average rate. This special rate is usually only good for a limited time, typically six months.

Some Tips

If you can't transfer all of your balances to a new card, transfer from whichever has the highest interest rate first. A month before the special rate ends, transfer back to one of your other cards (e.g. if rate ends in August, transfer at the beginning of July). This gives time for transaction to go through and keeps the interest low.  If you need to get a new card but get rejected twice or more, wait until one of your other cards is low enough to transfer to. Too many rejections can hurt your credit rating, making it even harder in the future. If you don't have another card then wait at least 6 months to apply to a different card.  Even if the cards you have aren't advertising a special rate for transfers, you can call them and ask for one. Don't get a secured card for balance transfers. You're better off using the cash to pay your existing cards.  A balance transfer also simplifies your finances by only having one payment to make.

Balance Transfer Example

$20K in credit card debt carries a monthly payment of between 2% and 3% of the outstanding balance ($400-$600 per month). Lets assume a $400 monthly payment at 13% interest. About $217 per month is going to pay for interest expense.

If you cannot obtain a new credit card, what do you have in your pocket now? Do you have a credit card with a ZERO balance? If so, call them and ask them if they have any low interest balance transfer offers you will qualify for. They probably will. Transfer as much as you can onto the low interest balance transfer card (less $100 so that you will not go overlimit). Hopefully this will leave you with another card with a ZERO balance. If so, call them and ask them if they have any low interest balance transfer offers. Do this until ALL your balances are receiving the lowest rates possible. If you can cut the interest expense to 5.9%, your monthly interest expense will drop to about $98. Your level payment will remain the same, but an additional $119 will be applied towards principle reduction. You will need to carefully monitor your transferred balances and make ALL payments at least a week ahead of time. Online payments will insure that your payments are made in a timely manner so that you do not incur additional finance charges or late fees.

Let's assume that you are able to transfer all your balances to obtain an average of 5.9% and that you will continue to make a monthly payment of $400 per month. Your balance will be paid off in 58 months. If you increase your payment by $400 per month to $800 (an additional $100 per week), your balance will be paid off in 27 months.

If you are able to drop your interest rate on the $20k to 1.9%, it will take you 53 months to repay your debt at $400 per month. If you increase your payment to $800 per month, you will be credit card debt free in 26 months.

Even if you are unable to get a balance transfer at a lower rate than the 13%, you can pay off this debt in 73 months at $400 per month. If you increase your payment to $800 per month, it will be paid off in 30 months.