Paying off debt is the new American Dream. When you’re drowning in credit card payments, it’s easy to imagine how simple, free, and financially secure life would be without debt. The fact that more than half of all Americans carry significant debt is depressing, and it’s even more depressing for the families who can’t seem to find a way to pay off their debt to achieve financial freedom.
With so many methods available to pay off debt it seems you have options, but it’s not always that simple. Many are looking for the least expensive way to pay down their balances, and there’s only one way to do that.
It’s amazing that debt consolidation with a credit card balance transfer is such an overlooked opportunity, but it’s one families should look into.
How Does a Credit Card Balance Transfer Work for Debt Consolidation?
Balance transfers are a simple concept. You apply for a new credit card with a stellar balance transfer offer, provide the card company with the credit card information of your other cards to transfer balances over, and your previous cards no longer carry a balance. If you’re thinking that transferring a balance from one card to another sounds nothing like paying off your debt, you’re right to an extent. New cards offer better deals for balance transfers.
Your current card is charging interest on your revolving balances. You’re going to choose a new card with a balance transfer offer that allows you to transfer balances for 0% APR for a specific number of months. This gives you X number of months to pay down or pay off your debts without paying interest. Do the math using the example scenario.
- You carry a $1,000 balance
- Your interest is 25%
- Your minimum payment each month is almost $31 (interest and 1% of your balance)
Each month you write a check for $31 to your credit card company because you can only afford the minimum payment. You’re paying $20.83 in interest and only $10.17 to the principal balance. In 15 months, you’ll pay less than $150 of your balance off. If you transfer that balance to a card that provides you with 15 months of interest free financing, you’re going to pay $465 of your balance off. It’s a great financial solution to paying down your debt. The lower interest rate helps you pay more of your debt in less time.
Now that you know how beneficial it is to use this often-overlooked method of debt consolidation and repayment, it’s time to figure out which credit cards are currently offering the most beneficial balance transfer offers. Depending on your credit score, you can apply for one of the three best cards on the market to help with your debt repayment.
Citi Simplicity Card
This is the best card for balance transfers currently on the market. It has its pros and cons, but the 21-month no interest financing on all balance transfers is the best offer on the market. Citibank offers consumers with good credit a chance to pay off their debt as much as possible for almost 2 years. The card doesn’t offer any other rewards, but seeing as how the point of this card is to pay down debt, it shouldn’t matter to you there are no rewards available.
The cost to transfer balances to the Citi Simplicity card isn’t astronomical, so you won’t incur much more debt. It’s going to cost you the greater of $5 or 3% of the total balances you transfer over. Citi Simplicity offers a myriad of perks in addition to the long interest-free balance transfer offer.
- No late fees are ever charged
- No annual fee
- You get to choose your own bill pay due date
- The APR following your 21-month 0% offer is competitive (13.24% – 23.24%)
Discover it 18 Month Balance Transfer Offer
Discover isn’t the card many people consider the best. The problem with Discover is that it’s not as widely accepted by vendors as MasterCard, Visa, and AmEx. However, you’re paying down debt using the 0% APR financing offers available, so spending isn’t high on your list of priorities. In this situation, you might consider it a perk you can’t use this card everywhere you go. This card offers 18 months of interest free financing on all balance transfers, which is a significant amount of time for anyone who wants to pay down their debts.
The Discover it card also offers some great perks if you do want to use it responsibly when your debts are paid in full.
- Cashback match allows consumers to double the amount of cash back they earn throughout the year the first year they have the card in their wallet
- 5% cash back on all Amazon.com purchases up to $1,500
- 5% cash back on all Sam’s Club and department store purchases up to $1,500 per year
- 1% cash back on all purchases is unlimited
- Rewards don’t expire
- Free FICO score with your billing statement each month
- No annual fee
- Good to excellent credit required
This is the card with the smallest window of opportunity to pay off your balance transfer debt. The 0% APR on all balance transfers offer only lasts 15 months, but it’s free to transfer balances if you do it within 60 days of activating your new card. There are no rewards for this card, but it’s the card that allows you the cheapest way to transfer balances. The only downfall to this card is you cannot transfer balances from other Chase cards.
- 15 months 0% APR on all balance transfers
- Free FICO score with billings statement each month
- 0% APR for 15 months on all purchases
- No annual fee
- There’s not penalty APR for any late payments you make
- Excellent credit required
Considerations When Looking for a Lower Interest Rate
Just because a credit card allows you to transfer balances for 0% APR doesn’t make it a great card. You must consider your personal spending habits, your own habits, and your debt. Before you go applying for all the cards on the market with 0% APR on balance transfers, you should know a few things so you don’t risk negatively affecting your credit score.
- Know your credit score.
Not all 0% balance transfer cards are available to all consumers with even good credit. Some require excellent credit, and you might need to look around for other cards with offers that might be a little less appealing but will approve you. Applying for cards and being declined over and over because of your score can drop your score.
- Know how balance transfer interest rates work.
Once your balance transfer 0% APR term ends, you’ll have to pay interest on the balance. Most credit card companies put in the fine print of their offers that interest accrues, which means it adds up every month it’s “Free” and is applied to your account when the 0% term ends if your balance is not paid in full at that time.
Using the credit card balance transfer method of debt consolidation to pay off your debts is a great concept for those who understand how it works. It’s less expensive than other debt consolidation methods, and it’s more easily accessible to many consumers. Educate yourself prior to applying for new cards, and you’ll be able to brighten your financial future substantially.