DIY: How to Consolidate Your Credit Card Debt with Balance Transfers

Is it possible to repay a large credit card debt on your own? Yes, it is, and one of the most cost-effective strategies here is transferring balances.

You may move a large balance from a high interest card to a card with no interest at all. Or you may consolidate your debt – move small balances from different credit cards to a single card account. Balance transfers simplify debt management, help you save on interest and pay off your debt faster.

Having a good credit score can help you get credit cards with zero interest balance transfer offers and credit line sufficient to transfer several balances.

Who may benefit

Using balance transfers to repay debt is an easy and effective solution but it doesn’t suit everyone. Let’s have a look at your current situation and decide on the solution which is right for you.

  • Once you’ve set a goal to pay off your debt, make a list of your credit card balances and their rates.
  • Then decide on how much money you may afford to pay on a monthly basis to get rid of your debt.
  • Calculate how long it takes to repay your debt with the decided monthly payments:
    • If debt repayment takes up to one year, the easiest way to complete it is to make regular payments according to your plan. Balance transfers may help you save some money only if your interest rates are very high – like a 29.99% penalty APR. Otherwise, they may be not worth your efforts.
    • If you cannot repay your debt for the nearest five years, then you most likely cannot cope with it on your own. It’s better to contact a debt management advisor and bankruptcy attorney. They will help you estimate your financial situation and find solutions.
    • If your debt is repayable within a one to five year period, then please continue reading our manual. We’ll show you how to save a lot of money without many efforts while repaying your debt.

Note that to make the most out of balance transfers, you should have a good to excellent credit score. This will allow you to qualify for credit cards with the most attractive balance transfer offers and get a line of credit sufficient to transfer your balances.

Why to consolidate debt

There are several situations when carrying balance on a credit card is an extremely bad idea:

  • You’ve been charged with a penalty APR and now have to pay high interest on your large debt.
  • You carry balances on several credit cards and have to keep in mind their varying rates and pay according to several due dates.

Balance transfers offers are made to tackle these issues. You apply for a low APR credit card, move balances there and save on interest while repaying your debt. Additionally, balance transfers make your credit card debt less complicated. Since when you move balances from different cards to a single credit card account, you get one due date and same rates for the whole debt. So, it becomes easier to keep your finances under control.

If you face the described problems, don’t hesitate and look for an appropriate balance transfer offer. You may start with our Top 3 Balance Transfer Offers containing cards with no annual fee, long intro periods with zero interest on balance transfers etc.

Do your best to act on the spot and keep your debt simple.

Balance transfer math

Now, let’s estimate your potential profit from balance transfers with two real credit cards picked as examples. (Find calculations below the table.)

 

Chase Slate®, 15 months with zero interest, no balance transfer fee

Citi Simplicity®, 21 months with zero interest, 3% balance transfer fee

Savings on an average 18% APR

$2,250

$3,150

Monthly payments to repay debt within no interest period

$666

$476

Savings on a 29.99% penalty APR

$3,750

$4,950

Have a look at balance transfer math below. It contains the following values: $10,000 as an average credit card debt, 18% as an average APR, and 29.99% as a penalty APR.

One of the best balance transfer opportunities with zero interest and no balance transfer fee is opened up by Chase Slate®. Its intro no interest period lasts 15 months. So let’s consider the following situations here:

  • How much you save on interest if transfer balance from a card with an average 18% APR:

On your current card you pay 18%/12 months=1,5% per month which is equal to $150 for a $10,000 debt.

If you move your balance to the Chase Slate® card with zero interest for a 15 month period, you’ll save $150*15 months=$2,250.

  • How much you pay monthly to get rid of your debt in full before the end of the intro period:

$10,000/15 months ≈ $666

  • How much you save if transfer balance from a card with a penalty 29.99% APR:

On your current card you pay 29,99%/12 months2,5% per month which is equal to $250 for a $10,000 debt.

If you move your balance to the Chase Slate® card with zero interest for a 15 month period, you’ll save $250*15 months=$3,750.

Citi Simplicity® offers a little bit different conditions for balance transfers. It has a 21 month long intro period with zero interest but charges a 3% balance transfer fee.

  • How much you save on interest if transfer balances from a card with an average 18% APR:

On your current card you pay 18%/12 months=1,5% per month which is equal to $150 for a $10,000 debt.

If you move your balance to the Citi Simplicity® card with zero interest for a 21 month period, you’ll save $150*21 months=$3,150.

But! Mind a 3% balance transfer fee which is equal to $300 for a $10,000 debt. So $3,150-$300=$2,850.

  • How much you pay monthly to get rid of  your debt in full until the end of the intro period:

$10,000/21 months ≈ $476

  • How much you save if transfer balance from a card with a penalty 29.99% APR:

On your current card you pay 29,99%/12 months2,5% per month which is equal to $250 for a $10,000 debt.

If you move your balance to the Citi Simplicity® card with zero interest for a 21 month period, you’ll save $250*21 months=$5,250.

But! Mind a 3% balance transfer fee which is equal to $300 for a $10,000 debt. So $5,250-$300=$4,950.

How to choose the right balance transfer card

There are several factors to consider while picking up a balance transfer card that will be right for you.

Interest rates. If your credit score is good enough, you may qualify for zero interest promotional offers. In other cases, look for a card with lower interest rates than your current ones. Please find here our top 3 balance transfer cards with the best conditions for various situations.

Length of intro period. Balance transfer cards have promotional offers with more attractive rates for a limited period of time – up to 21 months at the moment. If your debt is large or you have many balances to transfer, do your best to find the longest intro period available. This will allow you to save more on interest payments. Please check our rating of the best balance transfer cards with the longest intro periods.

Additional opportunities for debt consolidation. Some credit cards along with promotional balance transfer offers have other offers in a set. If there is a zero interest intro period on purchases, you may use the same card to consolidate your other debt as well. For example, you may pay off your medical bills with it. Thus, you’ll bring more of your debt into one place.

Balance transfer fee. Banks charge you with a fee for each balance transfer. The fee is normally equal to 3-5% of each transfer. Take it into account to calculate how much balance you may transfer without exceeding your credit line. Here we have picked for you the best balance transfer cards with no balance transfer fee at all.

Balance transferred, what’s now?

Here the most responsible part starts. You did your best to simplify your debt and to reduce its cost. Now, ideally, you carry balance on a single credit card with no interest for a one or even two-year period. And your goal is to repay your debt completely.

First and main. Don’t use your credit cards for new purchases. Zero balances on your rewards cards look very appealing. But they may bring you into trouble and only increase your debt. So put them out of your wallet, hide them into a drawer, do anything to avoid using them.

Mind your credit score. Yes, you shouldn’t use your credit cards until you repay your debt but you shouldn’t close these accounts either. 30% of your FICO credit score is credit utilization ratio. It shows how much of available credit limit is in use.

So what will happen if you transfer your balances to a single card and close other card accounts to avoid temptation? Your credit utilization ratio will increase significantly and result in lowering your credit score.

One card – one purpose

What if you transferred balances to a lucrative credit cards with a rewards program and promotional zero interest offer on purchases as well? No, don’t use your balance transfer card for anything else. Avoid troubles, avoid further indebtedness.

Most likely, intro periods start at different time, and there will be a gap when different balances on your card will have different APRs. Usually, banks have their payment allocation policy. That means that making payments to your card you never know to which balance it will go to. And this, potentially, may result for you in accruing interest on a higher interest balance within one card.

The bottom line

You may effectively manage your own debt without outside assistance if your credit score makes you qualify for credit cards with promotional balance transfer offers and credit line sufficient to cover main part of your debt. With balance transfers you can choose conditions for your debt and plan its painless repayment.

Bear in mind the most common mistake. Zero balance credit cards with lucrative rewards programs may look infinitely seductive. But no, you cannot use them for purchases to avoid further indebtedness. Be tough.

Keep your finances simple and stick to your goal – zero debt.