How Much Money Can You Save With A Balance Transfer
A balance transfer card is a great way to temporarily avoid interest charges while you repay debt. If youre aggressive with your repayment plan, you can manage to save hundreds or even thousands of dollars.
Lets take a scenario where you have a $5,000 balance and pay $200 each month toward that debt. Assuming you have the average 16.28% APR, youll pay $1,149 in interest charges, and it will take you 31 months to repay your debt.
But if you transfer your balance to the U.S. Bank Visa® Platinum Card which offers a 0% APR for the first 20 billing cycles and maintain the same $200 monthly payment, youll only wind up paying about $193 in interest and fees . After the intro period, a 15.99% – 25.99% variable APR applies, but for our calculations we assumed the average 16.28% APR. Balances must be transferred within 60 days from account opening.
Overall, youll save roughly $956 and pay off your debt five months faster if you open a balance transfer card.
Take An Inventory Of Your Financial Health And Credit Standing
Your best path forward will depend on your monthly income and budget, your , your total amount of debt and your lenders credit card policies.
If you havent done so already, check your credit score to gauge how lenders view your financial health. Your credit history is critical in determining what options are available to you, so dont move forward until you know where you stand.
Many issuers offer free credit scores. And some, such as Discover and Capital One, dont even require you to be a customer to get one.
Its also a good idea to pull a free copy of your credit report from AnnualCreditReport.com. That way, you can check for credit report errors or unauthorized accounts that might be dragging down your score.
Finally, look over your credit card statements and tally all your balances. Then, check the APRs for each open card. The debt on your highest rate card is the most dangerous to your budget, so thats the card APR and balance you should ideally tackle first.
Use The Debt Avalanche Method
If youâre juggling debt on multiple credit cards and loans, it can be tough to decide which to tackle first. Enter the debt avalanche method.
The debt avalanche method advocates that you should focus on the debt with the highest interest rate first regardless of the size of the balance. For example, letâs say you have: $1,500 in debt on Credit Card A with 19.99% interest, $3,000 on Credit Card B with 15.99% interest, and $20,000 in student debt at 4%.
With the debt avalanche method, you would pay the minimum amount required for each debt but any additional payments would go to the highest interest debt first. In this example, it would be Credit Card A, then Credit Card B, and finally your student debt. By honing in on the highest interest debt, you will pay the least amount of interest in the long run.
If you carry debt on two credit cards with the same interest rate, a helpful strategy to get things started would be to use the debt snowball method, which prioritizes your smallest debt first while making at least the minimum payment on everything else. The idea is that the sense of accomplishment from eliminating your smallest balance will keep you motivated to pay off the rest of your debt.
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Be Persistent And Document Everything
If you want to negotiate with a credit card company, the process usually begins with a phone call. However, it may require long conversations with multiple people over days or weeks. Before you call, make sure you know exactly how much you owe, what your interest rate is, and any other important account details.
Ordinarily, you’ll need to explain that you’re hoping to work out a credit card debt negotiation so that you can make sure the credit card company gets some of its money back, even if it’s not the full amount, which is better than nothing. If you’re considering filing for bankruptcy, then also let the company know that, and tell them that you’d rather negotiate your debt repayment instead.
Don’t give up if the first discussion doesn’t go the way you’d like. These negotiations often happen over time. Be sure to document the details of every conversation you have and with whom you’re having it.
If you do strike a deal, then be sure to get the terms of the settlement in writing to avoid future headaches and protect yourself.
As an alternative to pursuing a debt settlement with your credit card issuers, you could speak to a nonprofit organization, which offers certified counselors trained in consumer credit, money and debt management, and budgeting. They help individuals create personalized plans to solve their debt problems and offer solid financial planning advice.
Independent Federal Credit Union
Category: Credit 1. Independent Federal Credit Union Services Independent Federal Credit Union is a not-for-profit financial coop offering financial services to their membership. Joining the credit union will allow you Access your accounts when and where you want right in the palm of your hand. Its fast, secure and free
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Ways To Pay Off Your Debt
You can start paying off credit card debt by choosing a strategy, reducing your spending and making a few key changes.
1. Choose a Debt Payoff Strategy
Creating a plan can help you figure out what works best for you and even help provide motivation. There are two basic strategies that can help you reduce debt:
- Pay off high-interest debts first. Using a strategy sometimes called the avalanche method, youâll make the minimum payments on all your debts, but put extra money toward the balance with the highest interest rate. This can help you save money in the long term because high-interest debts are more costly.
- Pay off the smallest debts first. If you need to build momentum in your debt payoff plan, the snowball method might make more sense. With this strategy, youâll again make the minimum payments on all your debts. But then focus on putting any available money toward paying off your smallest balance first. Once youâve paid that off, you can dedicate any funds that have been freed up to your next smallest debt and so on.
2. Pay More Than the Minimum
You should always pay as much of your full credit card balance as you can, according to the Consumer Financial Protection Bureau.
Why? Paying more than the minimum payment can help you pay off debt more quickly than if you just paid the minimum. Thatâs because paying more can help you cover the charged while also decreasing the total balance on your card.
3. Reduce Your Spending
4. Switch to Cash Only
Call Your Card Issuer
Once youve gathered enough information to argue your case, call your card issuer and politely ask to speak with a representative about lowering the APR on your card. Make sure you have your notes in front of you and be prepared to bring up your research or additional details about your personal experience if that representative is slow to offer you a better deal. If you get a no, dont be afraid to call back another time or ask to speak with someone else. A different representative or supervisor may be more receptive.
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Snowball Vs Avalanche: Which Is Best
Whether the snowball or avalanche method is better will depend on your goals and personal debt situation. That said, in many cases, it can be better to use a combination of both the snowball and avalanche methods. This will allow you to pay off debt rapidly while accruing less interest overall. Try our debt payment calculator tool below to determine which method will be better for your specific scenario.
How Do I Pay Off Debt With Balance Transfers
When you have credit card debt, one option is to transfer your credit card balance to a different card.
If you have an account with a high interest rate, for example, you can transfer its balance to a card with a lower interest rate and spend less money on interest over time. This is like paying off one credit card using another card.
- Step 1: Identify the credit cards where youre paying interest on a balance
- Step 2: Decide how much money you can or want to transfer
- Step 3: Apply for a new balance transfer credit card, offering 0% APR on balance transfers for a set amount of time
- Step 4: Transfer the balance, or balances, from the older cards to the new card
- Step 5: Pay off your balance on the new card try to pay it all off before the 0% period ends
After performing a balance transfer youll open up the credit lines of those cards but dont use your newly available credit to rack up more debt.
A lower-rate balance transfer card can fit well with the avalanche method. Since you can use a balance transfer to strategically reduce the interest rate on your highest-interest debt, it can buy you time to focus on the next-highest interest account. This can reduce the total interest you pay.
Many balance transfer credit cards even offer a 0% APR for an introductory period . A 0% APR offer allows you a chance to pay off your credit card balance without incurring extra interest charges.
MoneyFactBalance Transfer Benefits
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It Changes The Length Of Your Credit History
Your length of credit history makes up 15% of your credit score, and it includes the age of your oldest card, your newest card and the average age of all your cards. A longer credit history can boost your score.
Closing your oldest card could shorten your average and bump down your score. But the impact won’t happen right away. Typically, a closed credit card in good standing will stay on your credit file for 10 years, so it could be a while until closing an older card account dings your score.
How Much Of A Balance Is Ok To Keep On A Credit Card
In general, its always better to pay your credit card bill in full rather than carrying a balance. Theres no meaningful benefit to your credit score to carry a balance of any size. With that in mind, its suggested to keep your balances below 30% of your overall credit limit. For example, if you have a total credit limit across all of your cards combined totaling $10,000, aim to keep the total amount you owe on your cards below $3,000.
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Using Your Credit As A Crutch
If you frequently charge more than you can afford to pay off each month, its likely that you would benefit from tracking your spending and using a monthly budget. This can help stop you from leaning on your credit and ultimately paying high interest on every purchase that ultimately makes everything you charge to your card more expensive.
Your best bet is figuring out how to spend less than you earn each month. That way, you can stop racking up more debt and focus on paying off the debt you already have.
If You Have Overspent But Arent In Debt
Did you know?
If you only paid the minimum payment on an outstanding balance of £2,000 with an APR of 18%, it would take you 34 years to pay it back. You would pay £3,983 in interest.
If you have been spending more than you should and are juggling two or more types of borrowing, such as credit cards, store cards, personal loans or overdrafts, its a good idea to get things back under control before you get into debt. You need to review how youre using your cards and concentrate on ways to get the balances down.
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Michelle Singletary On Retirement And Personal Finance
Early retirement: Want in on the great retirement boom? Early retirement sounds tempting, but the math can be a major reality check. Here are the five things you should know.
New retirement rules: As the pandemic upends the economy, theres never been a better time to examine the conventional wisdom about retirement.
Move over, crypto: A record number of workers are becoming millionaires with their boring 401s and IRAs. Many never earned six-figure salaries. Meet the newly minted millionaires next door.
Questionable sources: There is so much you need to do to manage your money that its a good thing to get recommendations. But you need to consider the source and whether the advice is in your best interest, biased or appropriate given your personal circumstances and money style.
In hindsight: If you could, what retirement planning advice would you give to your younger self based on what you know now? Heres what some retirees say are their biggest regrets.
Read more personal finance and retirement perspectives by Michelle Singletary.
Ways To Pay Off Debt On Multiple Cards
Ready to pay off your debt? The first step is to create a debt payoff plan.
If you only have one debt, your strategy is simple: make the biggest monthly debt payment you can handle. Rinse and repeat, until its all gone.
But if youre like most people in debt, you have multiple accounts to manage. In that situation, you need to find the debt elimination method that works best for you.
Many people turn to the strategies often exhorted by financial guru Dave Ramsey the debt snowball and the debt avalanche. Well explain both of those approaches below, as well as alternatives like balance transfers, personal loans, and bankruptcy.
We recommend using the debt avalanche method since its the best way to pay off multiple credit cards when you want to reduce the amount of interest you pay. But if that strategy isnt right for you, there are several others you can consider.
- Avalanche Method
- Bankruptcy
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Avoid Cards With Annual Fees
Today premium credit cards are all the rave. It seems like a new premium card comes out almost every month. While it may be tempting to get a credit card with your favourite NHL teams logo on it, watch out for the annual fees. Its important to consider the annual fees of a card before signing up. While you may receive a lower interest rate or higher reward points, is it really worth it if youre shelling out $120 each year in annual fees? For big spenders annual fees may be worth it, but for everyone else its probably wise to stay clear of cards with annual fees.
How Does Credit Card Debt Negotiation Affect Your Credit
While your credit score may have already taken a hit from past-due payments, there are other ways negotiating credit card debt can impact your score:
- Closed account: If your account is closed, you’ll lose the card’s available credit. Your credit utilization rate, or the percentage of your available credit that you’re using at a given time, is an important factor in your FICO® Score. If you don’t have a lot of available credit on other cards, it could damage your credit score until you pay down those debts.
- Notation on your credit reports: If you settle for less than what you owe, that’ll be added to your credit reports, which can hurt your credit score and make it difficult to get approved for credit in the future. Even if you get on a forbearance plan or a workout arrangement, the credit card company may report that you’re not paying as originally promised, which can hurt your credit score.
- More late payments: Depending on how long it takes to negotiate, you may have more late payments racking up on your credit reports, which can harm your credit score further.
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How To Pay Off Your Credit Card: 8 Ways To Reduce Interest Charges
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If youâre grappling with credit card debt, youâre not alone. And there are steps you can take to lower your credit card payments and reduce your interest rates .
Below we cover eight ways to reduce your credit card interest charges.
When Using A Credit Card To Earn Rewards
The credit cards with the most perks, including travel rewards credit cards, tend to charge the highest APRs in order to make up for their benefits. This creates a situation where many people who pursue rewards wind up overspending and carrying a balance, which means the interest they pay is easily wiping out the value of any rewards earned.
Consider that the average credit card APR at the end of Q4 2021 is 16.44%. At the same time, most rewards and travel credit cards cap earnings in the single digits, anywhere from 1% to 6% of the purchase price.
Even if you transfer points to an airline partner to cover pricey business class flights or other luxury travel, you would be incredibly hard-pressed to get value that is anywhere close to the amount youd spent paying the interest charges on your credit card bill.
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Is Canceling Your Credit Card Wise
It could be a smart idea to cancel a credit card when it’s costing you too much money or hurting your credit score in other ways. However, as canceling a credit card typically hurts your credit, if you are going to close your card, you can do it in a way that minimizes the damage to your credit file. Weighing the pros and cons can help you make the best choice for your financial situation.
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