Matt About Money

Is a balance transfer credit card right for you?


A reader has $6,000 in debt on a high-interest credit card. She’s considering getting a low-interest balance transfer card, but is right for her? Our expert gives her the scoop.

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Question for the expert

Dear Opening Credits,
I have $6,000 on a 24.5 percent APR credit card. I don’t have a lower interest credit card to transfer the balance. Is it wise to get a balance transfer card with a lower interest and transfer this amount? — Mi 

Answer for the expert

Dear Mi,
I’m so glad you wrote because it really irks me to know that you’re wasting precious cash on unnecessary finance charges. I mean, what’s the point? You’re not even getting something fun in return. It’s just contributing to a credit card company’s bottom line.

You don’t specify how much money you have to apply to the debt, so I’m going to assume the worst for now. Let’s say that you can only afford to send the minimum requested payment. What does this mean in time and dollars? Using the minimum payment calculator and assuming a 3 percent minimum payment, it would take you a horrific 262 months (21 years) to repay that balance — with a total interest charge of $11,586. And that’s providing that you don’t ring up another penny. Clearly this is an unacceptable scenario. Let’s change it.

Understandably, you ask about transferring your current debt to a credit card that offers a lower interest rate. It could be one of your options. Check out the balance transfer calculator on this site and play with the numbers to see how much you can potentially save. To give you an idea of how much you can benefit from such a transfer, I worked out some figures for you: If you were to qualify for a credit card with 0 percent interest in the first year and then a 10 percent fixed APR after that, you’d save $1,230 in the first year alone and then $73 each month until the account is repaid. And that’s with paying the balance transfer fee of 4 percent, which is fairly typical for these arrangements.

Credit card balance transfers

Sound like a good deal? It is. However, I’m afraid it comes with a little catch. To be eligible for the best balance transfer credit cards, you’ll almost certainly need an excellent credit score. Because your APR is so high, I’m afraid that you may have had some problems in the past that hiked it up — 24.5 percent is not normal, it’s punitive. Do check it out, though — you may qualify.

In the event the transfer isn’t right for you, don’t worry. You also have another way to get that debt down quickly and inexpensively. Here’s my three-step plan:

  1. Reduce your balance with a cash influx. Sell some assets and put the proceeds toward the debt. I bet you have a few things laying around that you can part with and put on eBay. Or have a yard sale.
  2. Pay at least twice the minimum requested payment. Cut back on spending or work more to add to your income. Or both.
  3. Contact your credit card company. It would be nice to stay with the same company because you won’t have to begin again with another. You have a history with them, too, which can work to your scoring advantage. Explain that you plan to repay the balance in full as soon as possible and ask for an interest rate reduction. If they say yes, awesome. If they say no, ask why and how you will be able to qualify for a better rate. Mind that you may have better leverage after reducing the balance in the first step and making larger than average payments for about six months in the second step. If they are unwilling to reduce your interest rate after that, then I would revisit the balance transfer idea. Your credit report will probably have spiked after your terrific credit activity, making you a better candidate for a premium card.

To put this plan in action, you will have to put forth some major effort, Mi, but I believe you can do it. It’s so important, too. Look at how much you are spending by hanging onto that debt again. It should upset you enough to make some dramatic changes to the way you charge, shop and earn.

See related:Compare balance transfer credit cards, All you need to know about balance transfers, Balance transfer calculator


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