Balance Transfer Debt Consolidation
5 key tips for transferring balances successfully to consolidate debt.
A balance transfer credit card is one tool you can use to consolidate debt in the right circumstances. However, be careful! If you use a balance transfer in the wrong financial circumstances, you can actually make the challenges you face with debt worse instead of better. With that in mind, make sure that you understand the below five points before you decide to apply for a balance transfer credit card.
If you still have questions or you need help deciding which option for consolidation is right for you, call Consolidated Credit today at to request a free and confidential debt analysis from a certified credit counselor.
Tip No. 1: Always aim for 0% APR
One of the main goals for debt consolidation is to reduce the interest rate applied to you debt as much as possible. This allows you to pay off the debt you owe (principal), rather than most of your payments going to pay off accrued interest charges.
The big advantage of using a balance transfer credit card for debt consolidation is that with a good credit score it allows you to qualify for 0% APR for an introductory period. This means 100% of every payment you make goes to eliminating the principal, so you can eliminate the debt quickly.
If you can’t qualify for 0% APR because you don’t have strong enough credit, then you will usually be better off using a different option for consolidation.
Tip No. 2: The longer the introductory period, the better
Your goal with a balance transfer consolidation strategy is to eliminate the debt in-full before the introductory period expires. This means you want to aim for the longest introductory period possible, so you have more months to eliminate the debt before the standard interest rate goes into effect.
Keep in mind that the shorter your introductory period, the higher the payments will have to be to accomplish Tip No. 3 below!
Tip No. 3: Divide the debt by the number of months at 0% APR
As mentioned above, your goal when you consolidate with a balance transfer is to pay off all of the debt within the introductory period before the 0% APR period expires. Once it does, the interest rate can jump to 20% or higher. In other words, you effectively lose the benefit of the balance transfer once the standard interest rate is applied.
With that in mind, if you have $5,000 in debt to pay off in an 18-month introductory period, your payments should be $278 per month – regardless of what the minimum payment requirement says. This is why balance transfers only have limited viability as a consolidation solution. If you have too much debt, such as $25,000, your monthly payments would have to be $1,389 to pay off your debt before the introductory period expires. In most cases, that would be too high for your budget, so you’d be better off with a different debt solution.
Tip No. 4: Be careful with balance transfer fees
Almost all balance transfer cards have a fee applied for each balance you transfer. Depending on which balance transfer credit card you choose, this can range from $3 per transfer to 3% of each balance transferred. This means fees have the potential to significantly increase the amount of debt you need to pay off.
If you have a card with a transfer fee of 3% then the fees for that $5,000 balance would be around $150. That means your monthly payments would actually need to be around $286 instead of $278 to pay off the balance in-full within the 18-month 0% APR promotional rate.
Tip No. 5: Stop spending on you other credit cards
One of the biggest mistakes people make in do-it-yourself debt consolidation is that they fail to stop spending on credit after they’ve consolidated. When you transfer the balances to the new card, your other accounts will be sitting at zero balances. It can be really tempting to pull out the plastic to make purchase you want or to earn rewards again.
However, you need to be committed to eliminating your debt rather than adding to it. You should stop charging until the consolidated debt has been eliminated. Otherwise, you can end up making your situation with debt worse instead of better.
Is balance transfer debt consolidation right for you?
- First do some calculations based on your total credit card debt and standard introductory periods of 12, 18 and 24 months to see how high your payments would be and if they would work for your budget.
- Keep in mind you need a high credit score to qualify for the longest introductory periods, so if you have less than perfect credit you may have trouble getting the introductory APR you really need.
- Next look at the cards available to assess balance transfer fees to see how much it will add to your debt.
- If possible, check your credit to make sure your score is where you think it is before you apply.
- Apply for the card you want after you shop around to compare options and begin your transfer plan. Remember that each credit card application you make creates a hard credit inquiry on your credit report, so only apply for the card you really want.
If the monthly payments are too high or your credit is too low to qualify for the card you need to consolidate successfully, then you need to consider other options. If you need help assessing your situation, call Consolidated Credit today at or complete an online application to schedule a confidential, no-obligation debt and budget consultation with a certified credit counselor at no charge.