When you’re drowning in credit card debt, it can feel impossible to break free. As soon as you pay your minimum balance across all your cards, interest fees just pile up and diminish any progress you’ve made.
One of the best ways to pay down credit debt across multiple cards is to consolidate that debt so you only have a single payment and one interest rate to worry about. A simple way to do that is with a balance transfer credit card that offers 0 percent or reduced APR for a set period of time.
A balance transfer is pretty simple. First, you have to find a credit card that offers the best balance transfer deal you can qualify for. The best offers out there will have 0 percent APR for at least 12 months. If you’re approved, you’ll have a set window of time to transfer the balances from your existing credit cards onto the new card. The card may charge a balance transfer fee of 3 to 5 percent, but with the average credit card charging nearly 17 percent these days, you’ll likely still be better off paying that one-time fee than with keeping your debts on high-interest cards.
Of course, there are downsides to any debt payoff solution. A balance transfer can easily backfire if you don’t understand how it works and how to use it wisely.
Keep these five rules in mind.
1. Don’t use the card for purchases. The first goal of a balance transfer credit card is paying off your existing credit card debt. If you spend on your new card, you’ll be stuck paying interest on the new balance, making it harder to pay your existing balance off. Some balance transfer 0 percent APR promos only apply to the transferred debts themselves -- that means they may charge interest on new purchases. And if that's the case, you’ll only be digging yourself deeper into debt.
2. Do the math — and read the fine print. If you have $6,000 worth of credit card debt that you want to consolidate and you found a balance transfer card that offers a 0 percent APR for 12 months, you have to be prepared to make monthly payments of at least $500 if you want to avoid interest charges. A balance transfer calculator like this one from Bankrate can help you there. Once that promo period is up, the card will likely start charging interest. In some cases, you could be hit with deferred interest charges if the card isn’t paid off in full by the end of the promotion, so read the fine print carefully.
3. Don’t bother looking for balance transfers at the same bank. You won’t be able to transfer debt from a credit card with one bank to a new card at the same bank, even if the have a great balance transfer offer. You’ll have to use tools online to find the best balance transfer offers, like this one from Nerdwallet. Banks offer balance transfers to “steal” your balance from a competing bank and not solely to offer you a lower interest rate. They are hoping you will spend on the new card or don’t finish paying off your debt by the end of their promotional period.
4. Get the transfer done ASAP. Most credit cards give you a short window — like 60 days — in which you can complete the balance transfer to take advantage of the promo APR.
5. Never miss a payment. Paying any bill late hurts your credit and may even cause your interest rate to go up and make it harder for you to qualify for promotions in the future. At the very least, make your minimum payment on time if you can’t afford to make large lump-sum payments on your purchases.
MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.