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Are Balance Transfers the Best Way to Pay Off Debt?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When you’re buried under a pile of debt, you’ll need to go beyond making the minimum payments if you hope to get debt-free as quickly as possible. And with interest rates on an upward swing, it may not be something you can afford to ignore.

This is where balance transfer credit cards come into play. Once you understand how they work, they can be a powerful tool that lets you temporarily pause your interest payments — and chip away at your principal balances faster.

MagnifyMoney tapped the experts to unpack everything you need to know about balance transfers. Here’s how to master the ins and outs of one of the most effective debt repayment options available.

What is a balance transfer?

It’s all in the name. A balance transfer involves taking one or more credit card balances and transferring them to a different card that has a lower interest rate. The ideal situation is to roll everything over to a card that has a 0% APR promotional period. This essentially eliminates the interest for a set period, giving you a chance to catch your breath and, if all goes according to plan, pay off the balance before the interest kicks in.

To pull off a balance transfer, you can either open a new low- or no-interest credit card, or look to your existing cards that you’ve already paid off to see if there are any deals to be had. According to David Metzger, a Chicago-based certified financial planner and founder of Onyx Wealth Management, it isn’t uncommon to find 0% interest rate promotions on your existing cards.

“If you’ve got multiple cards, chances are you get offers like that all the time,” he said.

If not, don’t be afraid to reach out to your credit card companies to see if they have any deals up for grabs. If they don’t, or you don’t have the credit capacity on your existing cards, you can shop online for a balance transfer card.

As for the promotional introductory period, it varies from offer to offer, with the best rates and terms generally going to those who’ve got excellent credit. Those with a minimum credit score of 680 can expect transfer periods that last anywhere from 12 to 21 months. Keep in mind that some offers tack on a balance transfer fee to the tune of 0% to 4%, so it pays to read the fine print.

How balance transfers can save you money

Temporarily eliminating your interest rate can translate to pretty significant savings. Let’s say you have the following open balances, and you pay $100 per month on each:

  • $1,000 with 18.00% APR
  • $2,000 with 16.00% APR
  • $800 with 20.00% APR

If you stay on this path, you’ll shell out $500 in interest and get out of debt in 24 months. But a balance transfer with 0% APR for 15 months will keep that $500 in your pocket. Your monthly payment won’t change, and you’ll also pay off the balance nine months faster. From a numbers-and-sense perspective, it’s a no-brainer.

“You can save a ridiculous amount in interest payments, but the name of the game is to more or less come close to paying the balance off completely before that transition over to that higher interest rate,” Lucas Casarez, a Fort Collins, Colo.-based certified financial planner and founder of Level Up Financial Planning, told MagnifyMoney.

Applying for a balance transfer credit card

As Metzger mentioned, turn first to any existing credit cards that can absorb some new debt. Are there any balance transfer offers available? If not, the best place to search and compare balance transfer offers is online. According to Casarez, the following factors play the biggest role in the kinds of deals for which you’ll be eligible:

  • A good credit score: You won’t qualify for much if your credit score is below 680. At the time of this writing, the longest promo periods with 0% interest were reserved for this bunch. Why? A lower credit score is a red flag to credit card companies that you may be a risky borrower.
  • Reliable income: Your credit score doesn’t stand alone. “You could have the best credit score in the world, but lenders still want to know that you have the ability to pay your bill,” Casarez said.

He adds that folks in retirement, for example, may have a tougher time qualifying for a worthwhile balance transfer since their money may come more from retirement accounts rather than Social Security or pensions. Casarez does clarify, however, that credit card companies typically want to approve you.

“These banks make a lot of money the longer that your current balance is at a higher interest rate,” he said.

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5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Balance Transfer Fee
3%
Credit required
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3 questions to ask before transferring your debt

If you’re looking to save money and get out of debt faster, balance transfers are a powerful weapon to have in your arsenal — if you know how to use them wisely. Here’s what to consider before giving it a go.

1. Do you understand why you’re in debt?

This strategy won’t work if you don’t get to the root of why you’re in debt to begin with. What kinds of purchases make up the bulk of your existing credit card statements? Whether they’re living expenses, splurges or surprise pop-up bills, it’s time to revisit your budget to prevent falling into the same patterns again. After your balance transfer is complete, seeing $0 balances on your old credit cards can create serious temptation.

“If you don’t have a plan, balance transfers may be something that allow you to spend even more money, so it could put you further into the hole,” Casarez said. “It’s like a hot potato you’re passing around, but there’s going to come a day when you have to pay up.”

Having emergency savings on hand provides an additional safety net because you won’t need a credit card to see you through your next unexpected bill. Our insiders recommend building a $1,000 mini-emergency fund while you’re paying off debt.

2. Can you pay off your debt before the introductory period ends?

Once your budget and emergency fund are in shape, it’s time to shop around online for balance transfer offers. Ones with the lowest transfer fees and longest 0% introductory periods are the best, but here’s the catch: This strategy only makes sense if you can pay off the balance before that period ends, at which point you’ll be slammed with interest charges on the remaining balance.

Standard interest rates after the introductory promo period ends are generally higher than other credit cards. And if you miss a payment, the credit card company may cancel your promo period.

3. Are you OK with taking a short-term credit hit?

Opening a new balance transfer card requires a hard credit inquiry, which will result in a short-term dip in your credit score. Your score may also take a small hit if the transfer itself uses up more than 30% of your new credit line. (How much you owe accounts for 30% of your FICO score.) But Metzger said it may be worth it if you’re ultimately eliminating high-interest debt faster.

“Your score will improve much faster than it would have had you not engaged in the strategy,” he said. “You take a small step backward for a huge step forward, if you’ve got the discipline to do it.”

Metzger does suggest using caution with balance transfers if you plan on financing a big purchase, such as a mortgage or car, within the next month or two. Depending on your financial health, slight fluctuations in your credit score could prevent you from getting the best interest rates on these purchases.

3 alternatives to a balance transfer

If a balance transfer isn’t in the cards for you right now, there are still plenty of viable ways to get out of debt as quickly as possible. Here are a few tried-and-true debt repayment methods you can put to use today.

1. Debt snowball method

The debt snowball approach prioritizes your lowest balance first, regardless of your interest rates. You make the minimum payments on all your debts while hitting the lowest balance the hardest with any extra income you can spare. Once it’s paid off, you take whatever you were spending there and roll it over to the next lowest balance. Keep on chugging along until all your balances are paid off.

“The nice thing about the debt snowball, and the reason that it tends to be the most effective way, is that you start to have those wins a lot faster when you’re focusing on those smaller balances,” Casarez said.

“You start to build up some momentum and confidence,” he added. “As you do that, you start to get a little bit more swagger and feel like you’re actually making progress and have more control over your financial situation than you thought.”

2. Debt avalanche method

This strategy puts your highest-interest balance above all others. When you compare it to the debt snowball method, it’s the fastest and cheapest way to get the job done, which is why Metzger said it makes the most sense.

“With that being said, people are quirky,” he added. “If paying down the lowest balance and snowballing it that way works for you, then by all means do it. The outcome is far more important than the path you take to get there.”

3. Debt Consolidation loan

Another way to tackle your debt is to consolidate it using a personal loan. Once you receive the loan amount, you use the funds to pay off all your debt, at which point you’ll have one new balance and monthly payment. This strategy is ideal for those who can lock down a lower interest rate. What’s more, personal loans often have fixed rates, monthly payments and repayment timelines, so it makes budgeting a whole lot easier.

And since it’s a lump-sum installment loan — not a revolving credit line in which you can charge and pay off as you go — using it to eliminate credit card debt should boost your credit score because you’re effectively using less available credit. Some personal loans do come with an origination fee, typically between 0% and 6%, so do the math to see if it’s the right debt consolidation method for you.

When shopping for a debt consolidation loan, it’s best to compare your option to make sure you get the one with the lowest interest rate. LendingTree, the parent company to MagnifyMoney, allows you to compare up to five lenders without affecting your credit score. Use our table below to get the best results!



Compare Debt Consolidation Loan Options

Which is the best way to pay off debt?

It all depends on your situation. If you’ve got a solid credit score and qualify for attractive balance transfer offers, it’s worth exploring — as long as you don’t charge new debt and you’ve got a plan in place for paying off the balance before the introductory period ends. When done right, balance transfers are great shortcuts that could save you a significant amount of time and money in the long run.

The debt snowball and avalanche methods are worthwhile alternatives for those who prefer to get out of debt the old-fashioned way. Meanwhile, a debt consolidation loan could pave the way for a locked-in lower interest rate. The main takeaway here is that you have multiple debt repayment options at your fingertips. They’re all, as the old saying goes, “Different paths up the same mountain.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
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Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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The Fastest Way to Pay Off $10,000 in Credit Card Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Before you read on, click here to download our FREE guide to become debt free forever!

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Updated – January 10, 2019

Digging out of credit card debt can feel frustrating, intimidating and ultimately impossible. Fortunately, it doesn’t have to be any of those things if you learn how to take control.

Paying down debt is not only about finding the right financial tools, but also the right psychological ones. You need to understand why you racked up credit card debt in the first place. Perhaps it was a medical emergency or a home repair that needed to be taken care of immediately. Maybe you’d already drained your emergency fund on one piece of bad luck when misfortune struck again. Or maybe you’re struggling with a compulsive shopping problem, so paying down debt will likely result in you accumulating more until the addiction is addressed.

You also need to understand what motivates you to succeed. Do you want to pay down your credit card debt in the absolute fastest amount of time possible that will save more money or do you want to take some little wins along the way to keep yourself motivated?

Here’s a couple strategies consider as you learn the best way to handle credit card debt — and pay it off quickly.

2 common credit card debt repayment strategies

These repayment strategies can help you pay off credit card debt quickly. Keep in mind, you can use these strategies even for non-credit-card debt:

  • Debt avalanche: Focus on paying off the credit card with the highest interest rate first. Then, work your way down. This strategy can save you money on interest and get you out of debt sooner.
  • Debt snowball: Pay off your smallest debts first. Doing so can motivate you to continue making payments as you climb out of debt.

You don’t necessarily need to pick the repayment strategy that gets you out of debt the fastest. After all, if your repayment strategy doesn’t keep you motivated, you may not stick to it.

Using a personal loan or balance transfer credit card

As you seek to repay your debt, you could consider a personal loan or balance transfer credit card with a lower interest rate than on your existing debt. Transferring your debt to one of these financial products could help you reduce long-term interest costs.

But you’ll first need to learn whether or not you’re eligible. Your credit score will play a big role in determining your eligibility for a personal loan or balance transfer card. Use our widget below to figure out if a personal loan or a balance transfer is the best option for you!

What’s the best option for me?

Please enter information below and we’ll provide the best option to consolidate your credit card debt!

If you have a credit score above 640, you have a good chance of qualifying for a personal loan at a much lower interest rate than your credit card debt. With new internet-only personal loan companies, you can shop for loans without hurting your score. In just a few minutes, with a simple online form, you can get matched with multiple lenders. People with excellent credit can see APRs below 10%. But even if your credit isn’t perfect, you might be able to find a good loan to fit your needs.

Not sure what your credit score is? Click here to learn how and where to find out. If you know your credit score needs some work but not sure of what can be done, click here.

If you have a score above 700, you could also qualify for 0% balance transfer offers. We will talk more about balance transfers below but this option is the best way to pay off credit card debt if you’re able to qualify for a 0% APR balance transfer credit card.

A credit score of less than 600 will make it difficult for you to qualify for either option. If you have a credit score less than 640, struggling to make monthly debt payments and would like to explore your options to reduce your debt by up to 50%, then please click our option below to customize a personal debt relief plan.

Custom Debt Relief Plan

Now let’s talk about the financial tools to add to your debt repayment strategy in order to dig out of the hole.

Let’s say you have $10,000 in credit card debt, and are stuck paying 18% interest on it.

You already know that putting as much spare cash as you can toward paying down your debt is the most important thing to do. But once you’ve done that, so what’s next?

Use your good credit to make banks compete and cut your rates

You could save $1,800 a year in interest and lower your monthly payments based on several of the rates available today. That means you could pay it off almost 20% faster.

Here’s how it works.

Option One: Use a Balance Transfer (or Multiple Balance Transfers)


If you trust yourself to open a new credit card but not spend on it, consider a balance transfer. You may be able to cut your rate with a long 0% intro APR. You need to have a good credit score, and you might not get approved for the full amount that you want to transfer.

Your own bank might not give you a lower rate (or only drop it by a few percent), but there are lots of competing banks that may want to steal the business and give you a better rate.

Discover it® Balance Transfer

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Rates & Fees

Read Full Review

Discover it® Balance Transfer

Annual fee
$0
Intro Purchase APR
0% for 6 Months
Intro BT APR
0% for 18 Months
Balance Transfer Fee
3%
Regular APR
14.24% - 25.24% Variable
Rewards Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Credit required
good-credit
Excellent/Good Credit

MagnifyMoney regularly surveys the market to find the best balance transfer credit cards. If you would like to see what other options exist, beyond Chase and Discover, you can start there.

promo-balancetransfer-halfIt also has tips to make sure you do a balance transfer safely. If you follow them you’ll save thousands on your debt by remaining disciplined.

You might be scared of a balance transfer, but there is no faster way to cut your interest payments than taking advantage of the best 0% or low interest deals banks are offering.

Thanks to recent laws, balance transfers aren’t as sneaky as they used to be, and friendlier for helping you cut your debt.

Sometimes the first bank you deal with won’t give you a big enough credit line to handle all your credit card debt. Maybe you’ll get a $5,000 credit line for a 0% deal, but have $10,000 in debt. That’s okay. In that case, apply for the next best balance transfer deal you see. MagnifyMoney’s list of deals makes it easy to sort them.

Banks are okay with you shopping around for more than one deal.

Option Two: Personal Loan

If you never want to see another credit card again, you should consider a personal loan. You can get prequalified at multiple lenders without hurting your credit score, and find the best deal to pay off your debt faster.

Personal loan interest rates are often about 10-20%, but can sometimes be as low as 5-6% if you have very good credit.

Moving from 18% interest on a credit card to 10% on a personal loan is a good deal for you. You’ll also get one set monthly payment, and pay off the whole thing in 3 to 5 years.

Sometimes this may mean a higher monthly payment than you’re used to, but you’re better off putting your cash toward a higher payment with a lower rate.

And you’ll get out of debt months or years faster by leaving more money to pay down the debt itself. If you want to shop for a personal loan, we recommend starting at LendingTree. With a single online form, dozens of lenders will compete for your business. Only a soft credit pull is completed, so your credit score will not be harmed. People with excellent scores can see low APRs (sometimes below 6%). And people with less than perfect scores still have a good chance of finding a lender to approve them.

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If you don’t want to shop at LendingTree, you can see our list of the best personal loans here.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brian Karimzad
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Brian Karimzad is a writer at MagnifyMoney. You can email Brian at brian@magnifymoney.com

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How to Manage Debt as a Single Parent in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When student loan deferment ended for Samantha Gregory, a single mom and founder of site Rich Single Momma, she had one reaction to her payments: sticker shock. “The amount they were asking for was so astronomical, it was bananas,” she said.

As a single mom in debt, these high payments were added to the already steep financial demands of covering household expenses and supporting her children, including one with special needs — all on one income.

Adding debt to the significant challenges of single parenting “puts a strain on not just your finances, but your emotions, your mental health,” she said. “It’s like, ‘I have this burden over my head so how am I going to take care of it and take care of my family?’”

It’s a question any single parent in debt may find themselves asking. There’s no one right answer, but the good news is that there are smart steps a single mom or dad can use to tackle debt. Here are some tested and certified strategies for how to manage debt as a single parent.

8 strategies for a single parent in debt

1. Keep debt on your radar

A key to managing money as a single parent in debt is to keep an eye on what you owe. Gregory warned against letting debt slip in your money management juggling act. “I know for me in the past, I’ve tried to ignore it and hope it would go away,” she said. “But it doesn’t go away. It’s still there, lingering.”

Keep your debts on your radar, so you’re not losing track of them, falling behind on payments or damaging your credit. If you don’t know what you owe, pull your free credit report and look up each outstanding debt you have and record the balance, interest rate, monthly payment and due date. Start a habit of reviewing these accounts regularly.

2. Work with your lender

Once you know what you owe, see if your lender offers any help or accommodations that can make this debt easier to manage.

You’ll have the most options for dealing with federal student loans, as servicers must provide you with options to forbear or defer payments, or switch to a different repayment plan.

Even for other types of debt, it can’t hurt to ask your lender if they’re willing to work with you. They might be open to giving you an extension on your payment, and some lenders will let you skip a payment now and tack it onto the end of your repayment period instead.

3. Claim benefits and support

Help isn’t always easy to come by as a single parent, so make sure you’re claiming the benefits and child support to which you’re entitled.

Federal assistance programs such as Women, Infants and Children (WIC), Supplemental Nutrition Assistance Program (SNAP) and school lunch programs can ease pressure on your budget while keeping everyone fed, for example. Other programs can assist with fixed monthly costs such as housing, child care or health insurance. Many state and local programs can offer additional help.

Single parents should also consider filing for child support. If you’re already entitled to such payments but the other parent isn’t paying, or you feel it’s not enough, consider pursuing legal steps to get adequate support for your family.

4. Revisit your budget

As a single parent with debt, living within your means is the foundation of your financial security. Review your budget to see if there are areas you’re wasting money on things you don’t need or use, whether it’s a neglected gym membership or a house you’re realizing is roomier than necessary. Consider lifestyle changes and sacrifices — big or small — that you could make to lower your monthly costs.

Look for ways to free up some of the mental space you’re using for your money, too, Gregory suggested. She likes to automate payments, for example, to ensure they’re going out on time with less effort on her part.

5. Sell your extra time and stuff

To the single mom in debt, Gregory suggested looking for ways to generate some extra cash. “I’m a firm believer in side hustles,” she said. “There are so many options out there available to create a side hustle, start a business or just get another part-time job or work-from-home job.”

Then, “look around your house and if you have something valuable you can sell, sell it,” she said. Doing so can bring a fast cash infusion that can help you stay current on debt payments, or even make an extra payment.

It can be a tough and even emotional to sell some belongings, Gregory acknowledged. But, “It’s just things and they’re replaceable, whereas your peace of mind, your family and kids, and your health are not replaceable,” she said.

6. Make extra debt payments

If you can carve out extra savings, that’s money you can use to pay off your debts faster. One method to do so is the debt snowball:

  • Figure out how much more of your monthly income you can afford to devote to making extra debt payments. Include this as a line item in your budget.
  • Put that extra cash toward your debt with the lowest balance, and make the minimum payment on all of your other debts.
  • Watch the balance on your high-priority debt decrease faster.
  • Once your first debt is gone, “roll over” the funds budgeted for your monthly payment and the extra payment and apply them to the next low-balance debt.

Making extra debt payments will lower your principal faster which will, in turn, lower your interest costs. As a result, this strategy could avoid hundreds of dollars in interest and shave months or even years off your debt repayment.

7. Consider debt consolidation

For a single parent, debt consolidation can be another way to get ahead. Consolidating debt makes the most sense when doing so will lower the interest rates you’re paying.

A credit card balance transfer is one way to accomplish this. You can open a credit card with a 0% introductory rate. Then, transfer existing balances to this new credit card (note that this will often incur a balance transfer fee) and you can repay this debt interest-free.

If you have higher debt balances or prefer a fixed repayment plan, a personal loan could be the way to consolidate debt. To do so, you can take out a new personal loan with the rates, term or payments you would prefer and use the loan funds to pay off and replace existing debts. You can compare various lenders with our debt consolidation comparison page to get an idea of the terms and rates for which you could qualify.

8. Tap your community for support

Managing debt as a single parent can be hard on you because, at the end of the day, paying them comes down to you alone. “In the back of your mind, you’re thinking ‘There’s no one who can help me with this,’” Gregory said.

However, you don’t have to go it alone — there are often people who are ready and willing to help as close as your own backyard. So let them! Family and friends can help you out in a variety of ways, from spotting you cash in a tight month to helping with child care. You can also get assistance from your church, community and local nonprofits or programs.

Even if you don’t always find the help you need right away, asking around can start you on the track to getting the recommendation or referral that leads you there. Gregory also suggested online communities, such as local or single-parent Facebook groups, as a way to crowdsource solutions and get connected with helpful resources.

Pass your debt and money lessons on to your kids

Debt can be a big regret for many single parents. “If I had more information when I was going to college, I wouldn’t have taken out so many loans,” Gregory said.

But these ideas for how to manage debt as a single parent can help you push past regret into action. In doing so, you’ll be creating the financial security that your kids need, all while modeling what good money and debt management look like in action.

Gregory, for example, used her experience with student debt to warn her daughter away from borrowing to pay for college. As a result, “She’s really blessed that she doesn’t have to take out student loans, so she won’t be saddled with that big debt when she graduates from college,” she said.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Elyssa Kirkham
Elyssa Kirkham |

Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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