Paying off credit card debt with a high interest rate? Consider a balance transfer
BATON ROUGE, La. (WAFB) - WalletHub reports that Americans collectively owe nearly $1 trillion to credit card companies.
The average balance per household is roughly $8,089.
Think about those numbers and then factor in the interest rate.
Depending on the type of credit card you have and your credit score, the average interest rate is roughly between 13 to 24 percent.
Multiply that with what you owe and that’s what you’re paying extra to borrow money from your credit card company.
If you made a financial goal to pay down or pay off your credit card debt this year consider a balance transfer.
“It’s often one of those two steps forward one step back kind of situations you get yourself in because of interest. So if you can target the interest then balance transfers are definitely one way you can do that,” explained Nathan Grant, Senior Credit Industry Analyst at CreditCardInsider.com.
It’s essentially where you move your debt from your interest-collecting credit card to one without it.
“There are credit cards that do introductory zero percent APR. It’s usually from like a year, year and a half, sometimes up to two years. Having that period of time where if you do have to carry a balance, you could be paying it off without building up all that interest,” said Grant.
It’s a smart option if you plan on paying off that entire balance within that introductory offer period.
That will save you money in the long run.
“If you make an initial purchase with a credit card the APR is going to calculate a percentage of whatever that balance is. So as you pay that balance down, that percentage does go down or the amount of that percentage will be the same but the value of it goes down,” he explained. “So that’s why it’s just so important to not just pay the minimum payments on your debts because you’re really not making a chunk out of that. Obviously ideally you want to pay the balance off completely month to month. If you pay off your balance month to month by the billing cycle due date you’re actually avoiding interest altogether because of the grace period.”
You need to do your research because sometimes there is a fee that comes with balance transfers.
That fee is either a set amount or it’s between 3 to 5 percent of the total amount you want transferred.
“Do the math ahead of time to see, ‘Is the fee to transfer that balance less than the interest over those months that I’d be paying?’ Usually it is,” Grant said.
The thing about balance transfers is that you’re still signing up for another credit card so there’s going to be a hard inquiry on your credit report.
Also, if you choose to open a new card to transfer your balance try not to use it for new purchases because you’re more likely to double the debt you have.
Grant said it’s about being responsible as you work towards becoming debt free.
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