The Debt Trick That Saved My Friend $1,000 in 10 Minutes
KEY POINTS
- Carrying $4,000 in credit card debt at 20% APR can cost $800-plus per year in interest.
- Most balance transfer cards give you 12 to 21 months of 0% interest.
- It's important to pay off the full balance during the intro period.
My buddy once bought a $4,000 engagement ring on a credit card. Romantic? Yes! Responsible?? Not so much -- especially when you're paying an APR of 20%.
I told him to check out a 0% intro APR balance transfer card. Ten minutes later, he had a plan to crush his credit card debt and save over $1,000 in interest.
Did he ask me to be a groomsman in the wedding? Nope. I didn't even get a speech.
Still, I've helped a bunch of friends get out of debt using this balance transfer strategy. If you've got high-interest credit card debt, it could work for you too.
How a balance transfer card works
A balance transfer is when you move debt from one credit card to another. If the new credit card has a 0% intro offer, you can pay off debt fast without interest bogging you down.
Here's the process:
- First, you apply for a new credit card that offers 0% intro APR on balance transfers. Note, most of these cards require good credit (670+ FICO® Score).
- Next, you transfer your old credit card balance to the new card. There will be a transfer fee, usually 3%-5% of the balance amount.
- Lastly, you pay enough each month to crush your debt before the 0% intro APR period ends. That way you won't pay any interest.
Most balance transfer cards give you 12 to 21 months of 0% interest. That's a huge amount of time to make serious progress paying off existing debt.
How much interest you can actually save
Let's say you've got $4,000 in credit card debt at a 20% APR. And let's assume you're paying $120 per month as a minimum payment.
At this rate, it will take you 4 years and 2 months to pay off, and you'll pay $1,887 in interest. Ouch!
But if you move that balance to a card with 0% intro APR for 18 months, and increase your payments to $225 per month, you would be debt free in 18 months and pay $0 in interest.
| Old Card | New 0% Intro APR Card | |
|---|---|---|
| Monthly payment | $120 | $225 |
| Payoff time | 50 months | 18 months |
| Interest paid | $1,887 | $0 |
Keep in mind there is a balance transfer fee. If we factor in a fee of 3%, it will actually cost $120. But that's a drop in the bucket compared to how much interest you save.
The real trick to this strategy is paying off your full balance within the 0% intro APR period.
Want to press pause on your interest payments? Check out one of the top balance transfer cards available now and give yourself the convenience of nearly two years interest-free to pay off purchases and balance transfers.
Ready to stop paying interest?
Balance transfers aren't magic, but they are a smart way to wipe out debt -- if you plan it right.
Just make sure to factor in any transfer fees, and aim to pay off your balance before the 0% intro APR window ends.
It worked for my buddy. And it can work for you, too.
Explore today's best balance transfer credit cards offering up to 21 months of 0% intro APR. Make a plan to crush your debt once and for all.
Our Research Expert
Joel is a full-time writer at Motley Fool Money, known for his clear, approachable voice on topics like credit cards, savings hacks, and side hustles. He’s been writing about money since 2018 and previously managed editorial content for the How To Money podcast.
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