A balance transfer credit card with a low or no-interest introductory period could help you pay down your principal and save a lot of money in interest. Considering all the pros and cons of a credit card balance transfer will help you make an informed decision about this option.
How much is your unpaid credit card balance costing you each month in interest? According to Federal Reserve data for the first quarter of 2020, the average APR on credit card balances is 15.09% which means if you carry an average balance of $6,194, you could be paying $70 or more in interest each month. That’s the costly reality for people who are only making minimum payments on high-interest credit card debt.
Key Features of a Credit Card Balance Transfer
Credit card balance transfers almost always come with a special introductory period. This means for a predetermined number of months, the lender will charge you a reduced interest rate on your credit card balance.
This period typically lasts 5 to 21 months, and the most desirable offers are for 0% interest. During that time 100% of your payments will go directly to paying off the principal balance.
Minimum credit card payments are typically 1% to 3% of your credit card balance, but if you qualify for a balance transfer credit card with a 0% introductory rate, you’ll want to take full advantage of this by paying as much as you can each month to drive down your principal balance. The best way to do this is to commit to a fixed payment that works in your budget.
The Cost of a Credit Card Balance Transfer
Lenders who offer balance transfer credit cards charge an upfront fee that is a percentage of the amount being transferred. This is usually 1% to 3% of the balance and is added to your principal.
This is one way that lenders can make an immediate return on your debt since they won’t be collecting any interest until the introductory period is over.
Balance credit cards also have many of the same fees associated with regular credit cards. Expect to pay late fees if you miss a payment and service fees if you take a cash advance, or use the card internationally.
All terms and fees will be listed in detail on your application. This includes the interest rate on the card after the introductory period is over.
Making Minimum Payment on Your Credit Card Balance
If you carry the national average balance of $6,194 and are only making 3% minimum payments, you could be spending $77 or more in interest each month. That may not seem like a lot at first, but over the course of a year, you could be shelling out $900 just to cover the interest on your debt.
Not only that, If you only paid the minimum balance it would take you a staggering 15 years and $4,217 in interest, and that’s only if you stopped using the card altogether!
With this data in mind, the benefits of a special interest rate offer come into focus.
The Pros and Cons of Using a Balance Transfer Credit Card
Pros
- Take advantage of a low or no credit card interest during the introductory period
- For a limited time, more of your monthly payment will go toward your principal balance
- Consolidate multiple lines of credit card debt into one monthly payment
- Qualify for better credit card terms that will save you money
- Pay down your credit card debt faster
Cons
- You have to pay a balance transfer fee
- Introductory offers last for a limited time
- Your introductory rate may not apply to new purchases
- Your introductory rate could be canceled if you miss a payment
- Your credit score can drop a few points due to a hard inquiry during the application process
Is a Balance Transfer Right For Me?
If you have poor credit, you probably won’t qualify for a balance transfer credit card. Unfortunately, consumers with credit scores below 670 aren’t eligible for these offers.
Consider a balance transfer when…
- Your credit health is good or recently improved to 670 or above
- Your income has increased
- You are confident you will qualify for better credit card terms
- You don’t plan to take on new debt or haven’t taken on new debt recently
- You are prepared to pay more than the minimum payment during the introductory period
Make Fixed Payments To Accelerate Your Debt Repayment
Paying more than the minimum during the introductory period could shave years off your repayment and save you thousands of dollars. This is true with any credit card but is especially beneficial for balance transfer cards.
If your balance transfer card has a 0% introductory rate, 100% of every payment you make will go toward your principal balance. On the other hand, if you only make the minimum payments (typically 1% to 3% of the balance) the amount will decrease as time goes on, slowing down your repayment.
If a balance transfer credit card is the right choice for you, make the most of it by finding a monthly payment amount that fits your budget. Before applying for a new card we recommend updating your budget spreadsheet so you can confidently commit to a fixed payment that will speed up your debt repayment.
24 Months of Minimum Payments vs. Fixed Payments
| Months 1 to 12 – 0% Interest Introductory Period | ||||
|---|---|---|---|---|
| Balance | Minimum Payment | Fixed Payment | Balance | |
| $6,194 | $186 | $250 | $6,194 | |
| $6,008 | $180 | $250 | $5,944 | |
| $5,828 | $175 | $250 | $5,694 | |
| $5,653 | $170 | $250 | $5,444 | |
| $5,484 | $164 | $250 | $5,194 | |
| $5,319 | $160 | $250 | $4,944 | |
| $5,159 | $155 | $250 | $4,694 | |
| $5,005 | $150 | $250 | $4,444 | |
| $4,855 | $146 | $250 | $4,194 | |
| $4,709 | $141 | $250 | $3,944 | |
| $4,568 | $137 | $250 | $3,694 | |
| $4,431 | $133 | $250 | $3,444 | |
| Months 13 to 24 – 15% APR Compounded Monthly | ||||
|---|---|---|---|---|
| $4,277 | $131 | $250 | $4,248 | |
| $4,202 | $128 | $250 | $3,998 | |
| $4,129 | $126 | $250 | $3,748 | |
| $4,057 | $124 | $250 | $3,498 | |
| $3,986 | $122 | $250 | $3,248 | |
| $3,916 | $120 | $250 | $2,998 | |
| $3,847 | $117 | $250 | $2,748 | |
| $3,780 | $115 | $250 | $2,498 | |
| $3,714 | $113 | $250 | $2,248 | |
| $3,649 | $111 | $250 | $1,998 | |
| $3,585 | $109 | $250 | $1,748 | |
| $3522 | $107 | $250 | $1,498 | |
Balance Transfer Credit Card Alternatives for Poor Credit
If you don’t qualify for a balance transfer, or simply want to consider other options you should consider debt consolidation. A Consolidation Specialist can help you make a plan to pay off your debt in 24 to 48 months.
The Benefits of Debt Consolidation Options
- Significantly reduce your monthly payment
- Pay off debt in 24 to 48 months
Work with Us
The Consolidation Specialists at Accredited Debt Relief can help move forward with a plan. You don’t have to face your debt alone, we are here to help! Contact us to learn how we can help you with your debt.