A Balance Transfer Can Get You Out Of A Debt Spiral. Here’s How.

Ah, credit card debt.

The issue with credit card debt, as many of us know all too well, is that the interest rates are so high; and that starts a vicious cycle where you’re busting your butt to pay off debt that is snowballing into a bigger and bigger sum.

At its most basic level, the goal of a balance transfer is to take all of your credit card debt and transfer it over to a new credit card with a much lower interest rate— or better yet, a card with an introductory period (typically lasting between six months and two years) with 0% interest .

The strategy with a balance transfer is to pay off all of your debt during the period when you’re not accumulating interest, because everything you put down goes straight to the principal. No more snowballs. This is great news because not only does it mean that your debt will stop growing, but it also means that you will be able to pay your debt off more quickly because the debt has stopped growing.

If it sounds like a great option, it is… for some people. But balance transfers are not a great fit for everyone.

Before deciding to go with a balance transfer, I want you to think through these five things:

1. Do the math.

Crunch the numbers to see if you will spend more money in the long run. Unfortunately balance transfers come with a fee, and that fee will be somewhere between 3% – 5% of the balance that you’re transferring. If you’re transferring your balance to a credit card with a 0% interest rate, you’ll probably still come out ahead— even with the transfer fee. But if you’re just transferring your balance to a credit card with a slightly lower interest rate compared to what you’re paying now, it might not actually save you any money when you tack on the balance transfer fee. So, actually do the math to confirm whether the balance transfer makes sense for your bottom line.

2. Your credit score will be dinged.

Remember: you are opening a new credit card, which will result in a hit to your credit score. Do you know that your credit score will be checked sometime soon? For example— are you applying for an apartment or a loan? If so, now is probably not the right time to do anything that will lower your credit score.

3. The limit does exist.

When you’re looking at potential balance transfer cards, check the limit. Depending on the card’s limit, you may not be able to put your entire balance on the new card. If that’s the case, it may still be worth it to go through with the balance transfer, but you’ll have to prioritize paying off the balance that’s still on the original card— the one with the high APR. Remember the golden rule: pay off the higher-interest-accumulating debts first. Always.

4. Stay open.

If you can transfer your entire balance, consider keeping the original credit line open. You may be tempted to close the credit account that no longer has a balance. That credit line brought nothing but interest fees and stress; you probably can’t wait to get rid of it, right? But remember: if you keep that credit line open, you’ll have more available credit to your name, which will make it easier to keep your utilization score lower, and that helps your credit score. But, if you do keep that credit line open, you cannot— and I repeat, you cannot— use it. That credit line only helps you if you’re not actually using it (confusing, I know). But remember, the whole point of a balance transfer is to help you pay off your debt for good, not give you a longer leash to spend more. This brings me to my next point…

5. Make a repayment plan and stick to it.

If you go with a balance transfer, you may breathe a sigh of relief when you see that your debt isn’t accumulating any more interest. But just because your debt has paused snowballing, doesn’t mean you can pause on making payments. A balance transfer will only be helpful to you if you stay diligent on making your payments while you’re in an interest-free-zone. A balance transfer isn’t a move to kick the can down the road; it should be a move to kick your debt’s butt once and for all.

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