Balance transfer credit cards can be a smart financial move; Money Girl explains how to figure out if this is a smart move for you.
Listener Lisa asks:
I've racked up about $12,000 on a credit card. I'm working hard to pay it off, but the interest rate is so high (24.99%) that it's going to take a long time. I typically pay about $500 a month on the card. Since I have good credit, would it be worthwhile to move the debt to a balance transfer credit card?
Answer: Depending on the deal you can get, moving your debt to a lower-interest balance transfer credit card can be one of the best ways to cut your interest rate and save money.
First, we'll take a look at Lisa's current card. It's easy to use a credit card calculator over at dinkytown.com to find out how long it will take to pay off a credit card.
The Credit Card Payoff Calculator says it will take Lisa 34 months to bury her credit card debt if she continues to pay $500 a month, which totals $17,000 (34 months x $500).
Let's say Lisa applies for a balance transfer card with 0% APR for 12 months, no annual fee, no balance transfer fees, plus cash back rewards. (By the way, this is an actual offer and it's one of the best I've seen on balance transfer cards in a long time. Of course, with a deal this good, it's only available for a limited time.)
Since Lisa has good credit, I'll assume she transfers her balance and gets no more than a 12.99% APR after the 0% APR 12-month promotion period expires. If she continues to make $500 monthly payments, her debt will be paid off in 25 months and she'll pay a total of $12,500 (25 months x $500). Using a balance transfer card could save Lisa $4,500 and allow her to get rid of her debt in about 2 years instead of 3. I'd say that's a worthwhile and smart financial move.
If doing a balance transfer is right for your situation, read more in How to Use a Balance Transfer Credit Card to Get Out of Debt.
To learn how to build credit fast, be sure to download a free resource that I created called the Credit Score Survival Kit. This multimedia kit includes a video where I show you step by step how to get your free credit report and how to get your credit score free, with no strings attached.
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