Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.
Updated on Thursday, February 12, 2015
Below is an excerpt from our Debt Free Forever Guide. Be sure to download the free guide to help dump debt for good.
Before you continue reading, be sure to check out How to Use a Balance Transfer to Attack Your Debt.
Complete the Balance Transfer
This is the easiest step! But you don’t start saving until you complete this step, so make sure you do it right way. In fact, if you wait too long you could lose the offer.
In order to complete the balance transfer, you will only need to have the credit card number of the credit card that currently has your debt. The bank that approved you for the balance transfer credit card will handle the balance transfer on your behalf.
There are two easy ways to complete the balance transfer:
- You can call the bank or credit union, and complete the transfer via telephone
- You can complete the balance transfer online. If you want to complete the transfer online, we have written a guide for some of the most popular banks. Here are the links:
- Complete your balance transfer as soon as possible. Typically, if you don’t complete the transfer within 60 days of being approved, you will lose the deal. But, the promotional offer usually starts from the day you were approved, not the date of the transfer. So, the earlier you start the transfer, the more you can save.
- The transfer may take up to 2 weeks. Make sure that you continue to make payments on your existing credit card until you have verification that the transfer has been completed. You want to ensure that you don’t pay any late fees or other penalty interest rates.
How to Make Your Payments
Once you have completed your balance transfers, you need to come up with a plan for how to make payments.
You may have heard of Dave Ramsey’s Debt Snowball. He tells people to pay off their smallest debt first, regardless of the APR. The reason for that method is psychological, not mathematical. A big part of paying off debt is staying focused, and by setting attainable goals (and celebrating them), you increase your chances of success. In addition, he does not want people to ever take out a balance transfer offer, because credit is evil, and you will only end up being tempted by debt.
We understand and respect that approach. And, if it works for you – go for it. However, it will end up costing you more money and more time. We believe that your goal should be to eliminate debt from the highest interest rate to the lowest interest rate.
Lets give you a very simple example. You have two credit cards:
If you were following the Snowball method, you would tackle the $3,000 credit card first, despite the fact that the interest rate is lower. Lets assume you can afford to pay $300 per month ($3,600 per year) towards this debt.
If you followed the debt snowball (minimum due on Credit Card #2 and all other money towards Credit Card #1), than you would:
- Have paid $1,702 of interest over the next 12 months
- You would have a balance of $7,102 at the end of month 12. If you reversed that order, and put all of your extra money towards the higher interest rate credit card debt, then you would save about $25 of interest. Not a big deal. However, if you completed a balance transfer, and moved $9,000 to a balance transfer, you could save a lot of money.
For example: If the deal is 2.99% for 24 months, you would save $1,479 in the first 12 months and the balance at the end of Year 1 would be $5,556.
So, the single best way to accelerate your debt payoff is to transfer your debt to a lower interest rate credit card.
A balance transfer can be a great to way to Transfer and Attack your debt. But, like most financial products, there are tricks and traps that you need to avoid. If you follow these tips, you will be able to save money without worrying.
- Don’t spend on the credit cards. Your goal is to get out of debt. The credit card company is betting that you will be tempted by the credit limits and start spending again. You must avoid the temptation, and only use the card as a way to pay down debt quickly.
- Pay on time, every month. If you pay late, you are giving the credit card companies the chance to start charging you a lot of money. Even if you are just a day late, you will be hit with a late fee. If you are 30 days late, your credit score will be hit (which can make everything in life more expensive). And, if you are 60 days late, you will lose your promotional interest rate, and could end up with an interest rate close to 30%.
- Don’t close the credit cards once the balances are paid off. When you have a credit card that does not have a balance, you are showing discipline. It keeps your utilization low, and it keeps your long credit history. If your credit card has an annual fee, just give them a call and ask to do a product transfer to a credit card with no annual fee (but with the same account number).
When used properly, a balance transfer strategy can save you thousands and take years off your debt repayment. Don’t let the myths or the what seems complex keep you from saving money. If you have any questions (or concerns), please don’t hesitate to email us at [email protected]
In addition, if you want to receive an email every two weeks with the best balance transfer offers in the market, sign up for our email (which we called the Price Checker). We promise we won’t overwhelm you with mail – and it will just keep you up-to-date on the best offers. You can sign up here.
Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.