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Committing to paying off your credit card debt is a smart idea. A good first step is finding a way to lower your interest rate – this will mean faster progress and lower costs in the end.
One possibility is applying for a credit card and transferring your higher-rate interest cards to a 0% intro rate on balance transfers. Most offers are for periods of 12 to 21 months. Another possibility is to consolidate all of your debt to a personal loan and pay off your debt in one easy monthly payment.
What it means to transfer a balance to a 0% introductory APR credit card
If you’re not familiar with what it means to consolidate your debt with a 0% APR card, the concept is simple: Credit card companies offer limited-time 0% APR periods on some of their cards. If you apply and get approved, you can move your high-rate interest debts onto the 0% APR card. This is known as a balance transfer.
Once you’ve moved all your high-interest balances onto the 0% APR card, those cards are considered paid off. You’ll then start paying on the new card until the debt is settled.
If you don’t have good credit, you may not be eligible to transfer your balances to your new credit card. In this case, another option is to apply for personal loan. You’ll still get the benefit of a lower interest rate than you have on your other cards and you will have one easy monthly payment without having a credit card that is offering you a new credit limit. That last thing you want is to pay down your balances but leave yourself open to creating more debt.
Benefits to taking this approach
There are a lot of great reasons to transfer as many of your balances as you can to a 0% card. For example:
- You’ll save money. The main advantage to consolidating your debt with a 0% card is that you’ll save money on interest. Many credit cards charge upwards of 30% APR, so if you’re carrying a balance on several cards charging a high rate and you’re able to move them to a 0% APR card, you’ll save hundreds of dollars (possibly thousands) in interest.
- It’s simple. Consolidating several debts onto one loan or card makes your financial life easier. You only have to worry about making one payment every month, and won’t have to prioritize which card to pay first. Plus, consolidating with a 0% APR card is one of the most hassle-free options out there. As long as you qualify for the card, moving your balances onto it is a breeze.
A few drawbacks to a 0% card
All financial tools have their pros and cons, and choosing a 0% intro APR credit card does have its downsides:
- Temptation to charge more. After you transfer a balance from a high-rate card to a 0% card, make sure you close the old account(s). Leaving those accounts open is only tempting you to charge them up again, leaving you in a far worse position.
- Balance transfer fees. While there are a few credit card issuers offering no balance transfer fees for a limited time, most credit card companies charge a 3 percent fee. And if you’re transferring more than one balance, those fees can add up fast.
- Late fees. Most card issuers consider a late payment as a deal-breaker. Meaning, your 0% rate is canceled if you miss a payment. If so, your rate will go up and you’ll find yourself with the same problem you began with, and that’s a high rate on a high balance.
- Getting hit with a high APR after the intro period. It takes discipline to make sure you pay off your balance before the intro period expires. But it’s imperative that you do, otherwise, you’ll incur a go-to rate that could result in far more interest fees than you bargained for.
If you have a pretty good credit history and the discipline to stick to a payoff schedule, then consolidating your credit card debt with a 0% APR card is worth considering. If you think you may run the risk of paying late or taking longer than the intro period to pay off your balance, then consider a low-interest debt consolidation loan with a set payoff schedule that can help you become debt free over a period of a few years.
When a debt consolidation loan is a better option
If you’re carrying multiple credit cards with high balances and interest rates and you have fairly decent credit, you could consolidate these debts into one low-interest loan at a rate as low as 5.99% in some cases.
The best thing about using a loan to consolidate debt is that there’s a definite end to the loan, so there’s no chance of you getting yourself into more debt for years to come. For example, if all of your combined credit card debt totals $25,000, a five-year personal loan at 5.99% would give you monthly payments of $483.20. And you would have the peace of mind in knowing that your loan will be completely paid off in 5 years.
But be sure to read the fine print. Some loan companies heavily penalize you for missing a payment or paying late. Also be sure to choose a personal loan that doesn’t also penalize you for paying off your loan early.
To make sure you stay on track to paying off your debt, consider signing up for automatic payment deductions from your checking account – so you never miss a payment due date. After all, once you consolidate your credit card payments to just one loan payment, it should be a little easier to keep track of just a single payment each month.
Whether you choose a 0% intro APR card or a debt consolidation loan depends on your needs, payment habits and financial goals. Both options can help you get rid of high-interest debt if you stay disciplined.
Point Savvy’s favorite cards for balance transfers
Chase Slate named “Best Credit Card for Balance Transfers” three years in a row by Money Magazine
- $0 Intro balance transfer fee for transfers made during the first 60 days
0% Intro APR on balance transfers and purchases for 15 months. After that, 13.24%, 18.24% or 23.24%, based on your creditworthiness
Free Monthly FICO® Score and Credit Dashboard
No Penalty APR– Paying late won’t raise your interest rate (APR). All other account pricing and terms app
$0 Annual Fee
- The ONLY card with No Late Fees, No Penalty Rate, and No Annual Fee… EVER.
- 0% Intro APR on Balance Transfers and Purchases for 21 months. After that, the variable APR will be 13.24% – 23.24% based on your creditworthiness.
- There is a balance transfer fee of either $5 or 3% of the amount of each transfer, whichever is greater.
- The same great rate for all balances, after the introductory period.
- Save time when you call with fast, personal help, 24 hours a day – just say “representative”
- Enjoy the convenience of setting up your own bill payment schedule on any available due date throughout the month.
Point Savvy’s top-rated debt consolidation loans
- Fixed rates as low as 5.99%
- Choose a 3-year or 5-year loan with a clear repayment schedule
- Get funds in as little as 24 hours
- Fixed rates as low as 5.99%
- Loan amounts up to $35,000
- Origination fee between 1% and 5% of loan amount
- Fixed rates as low as 5.99%
- Loan amounts up to $100,000
- No origination fees