How to Use Balance Transfers to Manage Your Credit Card Debt

I have already covered several ways to avoid piling on credit card debt in my post Plastic Money – when Debt comes disguised as Wealth!
However, if you seem to have dug yourself a debt hole that you find hard to come out of, fear not, for this one method can save you a ton of money.

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Let’s get you out of that debt hole

What is a Balance Transfer ?

How often do you browse through multiple websites when shopping online in search of the best price ?
Similarly a balance transfer lets you avoid paying a high amount of interest on your credit card debt by transferring the balance to another lower interest rate credit card. This will significantly reduce the amount you pay towards interest and allow you to pay the principal balance in a shorter duration.

Too much financial jargon ?

Let’s say you owe $10,000 on your credit card, which charges a 18% APR or interest rate. Your minimum payment in this case becomes $250, and if you simply stick to paying the minimum each month, it will take you 62 months to pay off your debt.
Want to guess the total amount of interest you would pay ?

$5,386 !!!

Yes, compound interest is awesome, but it can be a huge kick when you are trying to pay off debt. Now if you transfer this $10,000 debt to another credit card offering a lower or even zero interest rate, you can save over $5,000 just by making a simple switch !
Here’s a link to calculate the interest you would pay on your card.

Easy peasy, right ?
Before you jump to happiness, it’s my job to clarify a few things you must know.

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1.  Balance Transfer cards require good credit

I know what you’re thinking — ‘ I’ve already dug myself a deep hole and crossed the line towards a bad credit, what’s the point of all this? ’

But this isn’t the end. Zero percent interest balance transfer cards have become difficult post recession and are available to those with good or excellent credit scores. However, this does not mean it will NEVER be accessible to you. Start paying off your current debt aggressively which will drive your credit score higher, in turn allowing you to apply for a balance transfer card at a later date. Remember that any money you save towards interest payments is money earned.

2.  Balance Transfer fee

Each card will have a balance transfer fee associated with it. So, if you consider the previous example of transferring your $10,000 debt to a zero percent card, there may be a 3% balance transfer fee which will come to $300. This means your total balance will become $10,300.
Understand the terms and conditions and do the math before you sign that form hastily.

3.  Transferring Debt ≠ Repaying Debt

Just because you transferred your debt from one card to another, does not mean you can spend all you want for the next 18 months on a zero percent card. You still owe debt and you have no reason to add to it. Don’t add to your woes !

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Realize that you will still need to live frugally, stick to a budget and cut your expenses and commit to paying off your debt at the earliest. Repayment is top priority.

4.  Promotional APR is Time Bound

You might get lucky to get that amazing 0% APR and you feel great that none of your hard earned money is going towards unwanted interest payments. What people often forget is that the 0% APR was a promotional offer lasting only for the first 12-18 months, after which the banks start charging the regular rate.

It is during this promotional period that you need to act like an aggressive opportunist and strive to pay off your principal balance. The lesser you owe after this period, the less interest you shall pay.

5.  Repeat Balance Transfer after offer expires

I know you thought about this just after reading my previous point. Why not apply for another card and continue this chain of transfer of debt.

But you must know that applying for another card can hurt your overall credit score. When you continue to apply for lower interest cards while keeping your debt levels the same, banks will see you as a high risk individual and will prevent you from getting a good deal on that mortgage or car or even the next card. Treat this as a one time opportunity without trying to find loopholes.


I hope this post will allow you to make an informed decision towards managing your credit card debt and attain your goal of financial freedom.
Check out some of the balance transfer credit cards

Be Frugal, Be Smart, Be Rich !

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