Do you have credit card debt? Is the interest driving you crazy? Do you feel like you’ll never pay it off? Would you like to save on credit card debt, and pay your balances off faster?
I thought that might be something you’d like!
You can definitely save money on credit card interest. You can certainly pay your balances faster. And the best part, it’s easy!
Believe it or not, you may already have what you need to make this happen.
And when I tell you how to save money on credit cards, you’re probably going to think I’m insane, so bear with me and let me explain.
Ready for the secret? Ready to learn the one tool you need to pay your credit cards off faster?
Okay. Here it is. You need…
A credit card!
Go ahead. Laugh.
Get it out of your system.
Wipe the tears out of your eyes.
Catch your breath.
Okay. Feel better? Ready to move on?
Credit Cards To Save Money?
Yes, a credit card really can save you money on credit card debt if you’re smart about it.
Maybe you’ve heard of a balance transfer but didn’t know how it worked.
Perhaps you were concerned that you’d just get yourself deeper into debt if you tried it.
Well, I’m going to take the mystery out of balance transfers, and show you exactly how they can save you money and help you pay your debts off faster.
What Is A Balance Transfer?
As the name suggests, it is the transfer of a balance from one account to another. In the case of a card-to-card transfer like we’re discussing here, it basically means paying one credit card with another credit card.
And that is why so many people ignore this option. The thought is if the interest is killing me on one card, won’t paying it off with another card make it worse?
It would if you paid the minimum payment for one card with another. That would cause your debt to pile up to the point that you would never be able to pay it off.
But if you transfer the entire balance from one card to another card with a lower interest rate, you would save money on interest every month.
That would be great right?
Well, you can do even better.
How About 0% Interest?
Most credit cards run periodic promotions for low APR balance transfers. APR’s like 2-3% for 30 months. That’s some serious savings!
Sometimes you’ll even find promotions for 0% APR! That’s right, no interest.
The catch is, the term is shorter. Usually between 12-18 months.
The second catch is, they still figure the interest, they just don’t charge for the interest. Yet. If you pay the balance off during the promotional period, you really do pay no interest.
But if you haven’t paid it off, all of that interest gets tacked on all at once.
This is called deferred interest. It’s still adding up, but you only have to pay it if you go beyond the term.
How To Save Money With Balance Transfers
Remember I said you had to be smart about it. So don’t transfer more than you can pay off within the specified term.
How much can you guarantee you can pay toward your credit card every month. If you don’t know, you should create a personal budget plan before you try a balance transfer.
Read these articles for information on creating a budget plan:
If you do know, find a balance transfer offer and check the term. How many months is it? 12? So take the amount you can guarantee toward paying that debt every month, multiply by 12, and that’s how much you can safely transfer without going beyond the promotional period.
A Balance Transfer In Action
The last time I did a balance transfer, the terms were 0% for 16 months with a 3% transfer fee.
What that means is that if I pay the balance off in 16 months, the only “interest” I pay is the 3% transfer fee.
So let’s look at an example using these terms, and transferring a balance of $2,000 from a card with a 16% APR.
First, the 16% APR.
APR means “annual percentage rate”. That’s the total over the course of the year. So each month, interest is figured by taking 1.33% of your balance (16% divided by 12 months). So the first month that $2,000 will be hit with interest in the amount of $26.60. That will be added to your balance. Every month it will get a little smaller, but not much. Over the course of a year those interest charges would total in the neighborhood of $240.
If you transfer that $2,000 at 0% interest for 16 months with a transfer fee of 3%, you will be charged $60 to move the money. There will be no interest after that if you pay it off in 16 months. So the total you will pay to completely pay off that $2,000 is $2060.
If you left that $2,000 on the credit card with 16% APR, in that same 16 months you would have been charged about $252 in interest.
Just comparing that 16 month period, you’re already saving $192!
But here’s the kicker. The transferred balance is paid off in 16 months, and it only cost you $60. The balance left on the original card at 16% APR cost you $252 in 16 month, and if you’re only paying the minimum payments you still have a balance of somewhere around $1500! That card is going to take you another 3-4 years to pay off, and will keep costing you money in interest charges.
So Pay More Than The Minimum
That sounds like a good idea, and will save you money, but not as much.
Using the same example above, if you transfer the $2,000 with a 3% fee, your balance is $2060 and needs to be paid in 16 months. That means you need to pay $128.75 every month to pay the balance off without being charged interest.
So just put the $128.75 on the original card. Same thing, right?
Because you’re being charged interest every month.
This is what that card looks like in 16 months:
In 16 months you would have paid the same $2060, but you still owe $191.99. It will take another payment of $128.75, then another of $66.34 to pay off that card. That’s a total of $255.42 in interest, compared to the $60 transfer fee, for a total savings of $195.42.
What could you do with an extra $200?
I can think of much better things to do with $200 than pay interest to a credit card.
Now consider, that’s $2,000 at 16%. How much credit card debt do you have? What is the APR on your card?
If you owe $4,000 at 16%, your saving would better than double.
If your interest rate is 23-25%, which isn’t uncommon, your saving could be 3-5 times as much!
So take the time to create a personal budget.
If you need help with a budget, read these articles:
After you have your budget figured out, and know how much you can dedicate to paying off debts, find a good balance transfer offer. See how long the promotional rate is good for. Multiply that number of months by the amount you can pay every month and transfer that much.
Just make sure to stick to your plan and pay it off in time. If you do, a balance transfer can really help you save on credit card debt.
Did this article help you understand what a balance transfer is and how it works? Do you still have questions? Ask in the comments below. Have you ever used a balance transfer as part of your budgeting and money saving strategy? Share your story in the comments below. Let everyone know about your success so they can see that this really does work, and that they can do it too!
Thanks for reading