FAQs on credit cards for debt consolidation
What does a 0% APR introductory period mean?
A 0% APR intro rate means you won’t have to pay interest during the introductory period, which usually ranges from six to 18 months. Unfortunately, that doesn’t mean the balance transfers are free. The vast majority of balance transfer cards with a 0% APR intro rate still charge a 3% to 5% balance transfer fee.
What is a balance transfer card?
Balance transfer cards are credit cards with low APRs that are designed to help consumers consolidate debt from credit cards with higher interest rates. Some balance transfer cards offer a 0% APR introductory rate, also known as a teaser rate, to sweeten the deal. During the introductory period, consumers don’t have to pay interest on their debt. That way they can focus on repaying their credit card deb.
How much does a balance transfer cost?
It depends on the transfer fee your credit card charges you. The average transfer fee is 3%. For example, if you consolidate $10,000 in credit card debt, the transfer will cost you around $300. Money well spent if you manage to reduce or even cancel interest payments for a year or more. Some cards don't even charge a balance transfer fee during the introductory period.
How much can you save with a 0% APR debt consolidation credit card?
It all depends on how much you owe, how quick you repay it, and the terms of the card. To illustrate, let’s say you owe $15,000 in credit card debt and you transfer it to a balance transfer card with a 12-month 0% APR and that your original APR was 15%. The transfer will cost you around $450 and you’ll save $2,250 in interest payments.
If you combine the interest savings with an aggressive repayment plan of say $150 a week, you could cut down your debt to $7,200 within a year. Do the same thing with a card that offers a 21 or 18-month intro rate, and you could repay your $15k credit card in less than two years.
Why consolidate your credit card debt with another credit card?
It might seem strange to use a credit card to pay credit card debt. However, when done right, debt transfer credit cards can:
- Simplify your household budget.
- Help you avoid late payments and penalty APRs.
- Reduce your monthly payments.
- And allow you to pay lower interest rates.
Is it a good idea to do a balance transfer on a credit card?
If you are able to find a new credit card with a very low interest rate, a reasonable balance transfer fee, and an introductory period long enough to pay off the balance before the rate increases, then a balance transfer may be a good idea.
What happens if I don't pay off my balance transfer?
You may forfeit your 0% balance transfer offer if you make a late payment, have a payment returned, or exceed your credit limit during the promotional period. If that happens you will trigger the higher regular balance transfer interest rate. With two late payments in a row, the credit card issuer may apply a penalty rate until you make six consecutive on-time payments.
Do balance transfers hurt your credit?
It depends. Balance transfers can either help your credit score or hurt it. Every time you apply for credit, a hard inquiry is made on your credit report, which will usually ding your score. However, consolidating your debt may help you avoid missed payments, which could improve your credit score in the long run.
Can I have multiple balance transfers on the same credit card?
You can do multiple balance transfers to the same card, as long as the amounts transferred and any transfer fees do not exceed the card’s credit limit. Remember that a separate transfer fee applies to each balance that you transfer. Some issuers may have additional fees and restrictions.
Can I use debt consolidation without closing credit cards?
Yes, you can transfer the balance on your credit cards to a new debt consolidation credit card without having to close your existing credit card accounts.
What if your situation is beyond the help of a balance transfer credit card?
If you are overwhelmed with debt, your credit score is shot, and you can't afford to make minimum payments, it may be time to look at other debt relief options, such as a debt settlement. A debt settlement
allows you to negotiate a lower payment with your creditors in exchange for a lump sum payment. This will usually hurt your credit score and also has tax implications you should consider before making a decision.