Reading personal finance blurbs around the internet will eventually bring you to a piece about using a balance transfer to lower your credit card debt. If it is done carefully, a balance transfer can be an effective tool to help you reduce your debt. It also comes with several provisos and a need for a realistic gut-check on your part.
Break Down The Math
You will have to read the fine print of your potential new credit card. Look at items like read the introductory interest rate, the length of the introductory period, the annual percentage rate (APR) once the introductory period has expired, any fees for transferring a balance, and what your new minimum payment will be each month.
Does It Add Up
After you look at all of the things listed above, will the transfer really add up to a sensible decision? The first thing to ask yourself is whether you will really be able to stop using your credit card? If you do not, the debt will never go down. Next, is the introductory period long enough for you to make a significant dent in the amount you are going to transfer. If not, you may find yourself in a worse spiral than you tried to escape.
Many cards are currently offering balance transfers sans fees. If the card you are considering doesn’t offer free transfers, you have to look at the after-intro APR. If you will not shed at least 3 percentage points, then the transfer probably doesn’t make sense for you.
If It Doesn’t, Make A Plan
Even if a balance transfer doesn’t make sense for you, you can still reduce your credit card debt over the coming year. The most difficult step is to commit to putting that car away. I have often advocated taking your card out to the garage or put it in a locked spot in your shed to make it more annoying to get to. Once that is done, you need a plan to pay down your debt. Maybe you could find a way to pay your minimum on time, then pay at least half (all is better) of the interest that accrued on your statement. If that is not feasible, pay an additional $25 to $50 a week or two after making the minimum. If you think that such a small amount will never help reduce your debt, have a look at this post: does an extra $25 matter to your credit card debt. Hint: YES! You may want to sign up for online bill payment. It will make it much easier to apply multiple payments to your credit card each month.