by Dan Caplinger | Dec. 19, 2018
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Americans face major financial challenges, with many people deeply in debt and even more finding it difficult to set money aside for long-term saving goals like retirement. Too many people find themselves stuck without any apparent way out -- especially if they've let credit cards get the better of them.
Yet there's something that you can try in order to improve your financial life. You'll probably find it surprisingly simple. It won't work for everyone, but when it does, it could save you $100 per month or more -- and that's money you can use toward paying down debt, saving for a rainy day, or finally getting a head start on all the financial goals you've set for yourself.
Credit cards are notorious for wreaking financial havoc on their cardholders. A combination of high outstanding balances and expensive finance charges can be costly, and it's dangerous for anyone to use credit cards if they aren't positive that they can pay off their balance in full each month.
Once you fall into the trap of carrying credit card debt forward month to month, it's hard to get out. The costs are shocking, as you can see from the following example:
|If You Have $5,000 in Credit Card Debt at This Interest Rate||Then It'll Cost You This Much in Interest Each Month|
Data source: Calculations by author.
Carry a bigger balance, and the monthly costs of credit card debt get an even larger and more difficult to overcome.
Fortunately, there's a way out for cardholders. Because the card industry is so competitive right now, you can often find lucrative offers to entice you to switch cards and go with a competing issuer. One of the most common ways that card companies try to poach each other's customers is through balance transfer promotions. Under these promotions, your new card company offers you an introductory 0% rate on your transferred balance for a certain length of time, often a year or more.
Taking advantage of a balance transfer promotion is pretty easy:
Typically, that's it. Your new card company takes care of the rest, and you're all set.
The secret to a successful balance transfer is the introductory offer. If you can reduce your interest rate to 0% on your entire outstanding balance, then you won't have to pay any interest charges at all. Depending on your current interest rate, the transfer promotion will save you a ton of interest -- as much as $104 every month for outstanding debt of $5,000 depending on your interest rate, and potentially even more for larger balances.
Balance transfers aren't perfect. For one thing, you might not qualify for a balance transfer. Customers that carry balances are attractive to card companies, but if you have a poor credit history or have made mistakes like missing or being late with payments in the past, you might not be able to get another card company to accept your application.
Also, most card companies charge a one-time fee for balance transfers. This is typically based on the amount you transfer, with fees ranging from 2% to as much as 5%. It's important to find an offer with as low a fee as possible, or else the upfront costs will take away too much of your monthly savings.
Finally, be sure to look at the interest rate that your new card will charge after the end of the introductory period. You might be able to get your balance paid down entirely during the 12 to 18 months that many balance transfer offers last, but if not, the last thing you want to do is to be in a worse position than you were with your previous card by having to pay a higher rate.
Even with these concerns, balance transfer promotions can offer many cardholders a great way to save money in interest every month. Anyone carrying a balance and paying big finance charges owes it to themselves to see if a balance transfer offer could cut their credit card costs.
If you have credit card debt, transferring it to this top balance transfer card can allow you to pay 0% interest for a whopping 18 months! That’s one reason our experts rate this card as a top pick to help get control of your debt. It’ll allow you to pay 0% interest on both balance transfers and new purchases until late 2022, and you’ll pay no annual fee. Read The Ascent's full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.