Pay Off Credit Card Debt With Another Credit Card
One of the perks of having a credit card is that sometimes, if you’ve built up a significant amount of debt, a credit card balance transfer is an option. It allows you to avoid higher interest payments.
Depending on how much money you owe on your credit card(s) and at what interest rate, a balance transfer can save you hundreds if not thousands of dollars.
Unfortunately, a large amount of credit card debt translates into a poor credit score.
And often, consumers who can benefit the most from a balance transfer offer can’t get approved for one.
Of course, the best way to avoid getting into the situation where you need a balance transfer or interest rate deal to get out of debt is to cut back on spending. Read our list of ways to get out of debt fast.
But if you’ve already find yourself in credit card debt you can effectively execute a balance transfer by using a 0% purchase APR credit card.
Make sure you research the interest rates before consolidating your debt – check the term sheet that arrived with your card or log into your credit card account online. If a balance transfer fee applies, it will tell you what the percentage is.
A credit card balance transfer without 0% APR can be 1-3% of the amount.
How to Do a Balance Transfer
Take your 0% intro APR card and start using it instead of cash to make as many of your everyday purchases as you can. Then pay only a portion of the balance each month.
Take the remaining money you normally would’ve spent on those everyday purchases and use it to pay down your high interest debt. You can repeat this process each month for up to half the length of your 0% APR purchase credit card term.
It’s important you don’t do this for the entire 0% APR purchase offer. In essence you’re getting rid of one debt in exchange for a better one. Building up debt on your 0% purchase APR for only half the intro term can save you a fair amount. It also won’t compile against you in the longterm!
If you're doing a balance transfer choose a credit card, not a "charge card".
Compared to a normal credit card, a charge card will have a higher APR interest rate than a credit credit card. It will also have high penalty fees if you don’t pay it off in full at the end of each month.
Here’s some of the popular charge cards for consumers.
- American Express Gold Card
- American Express Green Card
- The Platinum Card by AMEX
Credit Card Balance Transfer Example
Let’s say you have $10,000 in credit card debt at an APR interest rate of 20%.
If you can pay off $2,000 a month using the above strategy, you’ll end up paying about a little more than $500 in interest over a six-month period.
But if you can only make the minimum payment of $200 each month, you stand to lose more than $2,000 in interest for the year. And even worse, on this payment plan it can take up to 8-years to pay (depending on fees) and ultimately cost you two times the amount of the original $10,000 credit card debt amount.
Depending on how much debt you have, using your 0% purchase APR credit card to pay down high interest debt can be just as valuable as any balance transfer credit card offer available today.
Just be smart and make sure you leave yourself enough time to pay off your new credit card as well.
Bankrate.com has a good list of low-interest credit cards that depending on your credit score, likely don’t have a balance transfer fee.