(BPT) - If you are facing some steep credit card debt in the wake of recent spending, it may be possible to pay down those balances before interest charges make the problem worse.
Balance transfer cards, when used correctly, can be a useful tool in managing credit card debt. Specifically, these cards can provide a window with a very low interest rate and may even charge no interest during that time. That may be more important than ever now, with interest rates rising sharply.
Rising interest rates make paying down debt important
It’s common for consumers to run up credit card debt during the holiday season then spend months paying down those bills.
In the meantime, interest charges on what is owed can add to the problem. The annual holiday financial hangover could be particularly bad this year because interest rates have been rising. According to the Federal Reserve, rates charged on credit cards rose by more than a full percentage point in just six months during mid-2021.
Assess how a balance transfer credit card could help reduce your interest payments.
How balance transfer credit cards can help
A balance transfer card is a credit card that offers a special low interest rate on any balance amounts you transfer from other credit cards.
This can work to your advantage if the new card’s interest cost is cheaper than that of the old card. Since some balance transfer cards offer a 0% interest rate for an introductory period, you could save a substantial amount in interest charges.
However, since the 0% interest period is time-limited, it doesn't eliminate the problem of interest charges unless you pay off the balance before the introductory window closes.
What you should know when choosing a balance transfer card
There are plenty of balance transfer credit cards to choose from. Knowing what to look for can help you select the offer that is most helpful to you.
Four things you should know in order to pick a balance transfer credit card:
- Length of the 0% interest period. A 0% interest offer sounds great and the longer that introductory period lasts, the better. This determines how much time you'll have to pay down any debt you transfer before interest charges apply.
- Interest rate after the introductory period. After that initial 0% interest period is over, you'll start to pay a regular interest rate on any balance you still have on the card. That rate is subject to change, but comparing the ongoing rate before you sign up can give you an idea of how competitive the new card is with your current credit card. If the rate is high, it is very important to pay off your debt before the introductory period is over.
- Balance transfer fees. Besides ongoing interest charges, some cards charge a one-time fee on any balances you transfer onto the card. If you were going to pay off your balance quickly anyway, it may be cheaper to stick with your current card than to pay a balance transfer fee.
- Your plan for paying off the balance. Balance transfer cards work best if you pay off the debt completely before the introductory interest rate expires. So, have a plan for how you will pay down your balance month-by-month within the introductory period.
Choosing the right balance transfer card can ease the interest burden on your credit card debt, with more of your money going toward paying down the principal. For more information, see CardRatings.com: https://www.cardratings.com/best-balance-transfer-credit-cards.html.
