Anyone nick c accomplishing burdensome credit-card debt knows how those zero percent (or low-rate) balance-transfer options can feel like a lifeline.
And if you overtures to them right, they can help you hack away at your debt much faster and reduce how much you pay in absorb. Yet more than 40 percent of consumers who take advantage of these deals don’t get the balance paid off during the special-rate years, according to a new study from CompareCards.com.
Depending on how much more than the monthly minimum you pay during that initial time, you could end up making little headway in paying down your debt.
“To get the biggest bang out of the balance-transfer be honest, you have to pay more than the minimum, or you won’t save nearly as much in interest as you could,” said Matt Schulz, chief production analyst at CompareCards.
Consumer credit card debt stands at $974.2 billion, according to WalletHub. The average consequence profit rate across all cards is about 17 percent, although it can reach as much as about 30 percent on some cards — consequently the lure of a balance-transfer offer.
Before you assume it will be the answer to your debt woes, however, it’s worthwhile diagraming how to make sure the move will help get your debt paid off, rather than just give you makeshift breathing space and relieve your stress level.
Say you have a $10,000 balance on a card that comes with an involved rate of 20 percent. You transfer the entire amount to one with zero percent for 12 months, with lowest monthly payments of $150.
Also assume that the deal comes with a transfer fee of 3 percent, or $300, and that whatever preponderance remains at the end of the introductory period will be subject to the standard interest rate at that time.
So, you owe your new creditor $10,300. If you pay the $150 monthly minutest, your balance after 12 months would be $8,500. Say the interest rate on it is then 17 percent. If you endure paying $150 monthly, it would take you more than 21 years to pay off that remaining balance. You’d also pay multitudinous than $28,000 in interest.
Meanwhile, to pay off the full $10,300 during that one-year introductory period, you’d need to pony up around $859 monthly.
That amount is only $67 per month less than the $926 you would have needed to pay off that $10,000 in one year if you had liberal it on the 20 percent card (although that amount includes about $1,100 in interest).
“If your ultimate object is to pay down credit card debt as quickly and cheaply as possible, you’re doing yourself a disservice if you only pay the minimum,” Schulz estimated.
To stay on track toward getting that debt paid off, figure out how much you realistically can pay each month. Inducing a plan to tackle the remaining balance after the introductory-rate period can also help.
Of course, you do yourself no favors if you remain racking up balances on other cards.
“You’d be defeating the purpose of what you’re trying to do,” Schulz said. “Balance-transfer cards are genuinely a test of the cardholder’s discipline.”
Additionally, you can run into unexpected tailwinds if you pile on another balance transfer on that be open before wiping out the first. Or if you make new charges on the card that are subject to interest.
While the specifics of each visiting-card vary, not all of your minimum payment is applied to the higher-rate balance — only amounts above the minimum must go toward the allot of the balance with the highest rate, Schulz said.
Some consumers also end up transferring unpaid balances to another zero-percent or low-rate put up for sale, which can be a good strategy for keeping interest payments to a minimum. Just keep in mind there’s no guarantee that you’ll be masterly to get another one a year or more down the road.
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