by Christy Bieber | June 27, 2019
Paying off debt can be a major challenge, especially when you have credit card debt at a high interest rate. The average APR on credit cards is typically around 17% or higher, and some cards have interest rates well above 20%. If you're paying interest because you didn't pay off your balance in full, a good portion of your monthly payment is likely going toward these needless interest charges.
The good news is that there's a smart debt payoff technique that could make it much easier to pay down credit card debt. The bad news is that a recent Ascent study on Americans' credit card preferences shows that the majority of Americans have never used this technique.
So what's this debt repayment technique so many cardholders are sleeping on? The balance transfer.
The Ascent found only 38% of survey respondents had consolidated credit card debt with a balance transfer. About half of baby boomers reported having transferred a balance versus one-third of millennials.
Balance transfers involve transferring the balance from one or more credit cards to a new card that carries a 0% interest rate for the first several months. The best balance transfer cards charge no fees for transferring a balance. No credit card is interest-free forever, though; once the promotional period ends, the interest rate will spike to the double digits.
Say you owe $3,000 on a card that's charging you 17% interest, and you've been paying $200 a month toward it. If you were to transfer that balance to a card that charges zero interest for the first 15 months and continue paying $200 a month, then you'd have that debt entirely paid off within the promotional period and save $400 in interest. You'd save so much because every dollar of your payment would go toward paying off your balance, rather than enriching your creditor through interest charges.
If you'd like to save on interest and make debt payoff easier, you may want to join the minority of Americans who have used a balance transfer. But you need to be smart about the process.
First and foremost, you need to find a good balance transfer card. Some cards don't offer 0% promotional rates or offer them only for a very short period, and some cards charge a fee for transferring a balance. Avoid these cards. And be sure to pick a card that you can qualify for based on your credit and that doesn't charge an annual fee, which could reduce your savings.
Ideally, your monthly payments will be large enough to pay off the balance in full by the time the 0% rate expires. Otherwise, your interest costs could spike again. You could always try to transfer the amount that remains to a new balance transfer card, but there's no guarantee this will work.
If you can't pay off the balance by the time the promotional rate expires, you may still achieve some savings by going such a long time without paying interest. It all depends on how large the remaining balance is and how the standard interest rate on the balance transfer card compares with the rate on your current debt.
If you'll still have a ton to pay back after the promotional rate expires, you may be better off considering a personal loan to pay off credit card debt instead. Personal loans usually have a longer repayment period than the 0% promotional period for balance transfers, and the interest rate during the whole payoff period is typically lower than credit card rates -- although it's not 0%.
If you do opt to transfer a balance -- or to refinance with a personal loan -- you also need to make certain you don't charge up the cards you've transferred the balance from. Otherwise you'll only end up deeper in debt, because you'll have the balance transfer card or loan plus a new balance on your cards to pay.
If you owe credit card debt, consider joining the minority of Americans who have used a balance transfer to pay off what they owe. If you can be responsible with debt payoff and won't charge up your existing cards again after freeing up your line of credit, a balance transfer can be a powerful money-saving tool.
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.
But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases into 2022, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.
That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.
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