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Debt Management vs. Debt Settlement: Which Is Best for You?

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In 2018, the average American held $38,000 in debt (excluding mortgages). The sobering truth is that some of these people will never get out of debt — in fact, 13% of respondents in the study said they believe they will be in debt for the rest of their lives. Perhaps you’re in significant debt that’s been mounting for years and you’ve decided it’s finally time to tackle it. You’ve heard about both debt management and debt settlement, but don’t really know what either entails.

Below, we’ve broken down the difference between debt settlement and debt management so you can decide which method is right for you.

Debt management vs. debt settlement

 Debt managementDebt settlement
What is it?A nonprofit credit counseling agency communicates with your creditors and helps you come up with a debt repayment plan.A for-profit company attempts to lower your total debt by negotiating your debts with your creditors on your behalf.
How much does it cost?On average, between $25-$50 per month. (There could be a small enrollment fee, but this should be less than $75.)18% to 25% of the total enrolled debt, plus potential other enrollment and account maintenance fees.
When is it useful?
  • If you want to learn about healthy money habits while repaying your debt.

  • If you want to maintain or potentially improve your credit score while paying off your debt.

  • If you find the simplicity of one monthly payment appealing.

  • If you have significant debt, which likely means $7,500 or more.

  • If you feel you’ve reached the point of no return, but don’t qualify for bankruptcy or don’t want to pursue bankruptcy.

  • If you want to get out of debt as quickly as possible and aren’t deterred by the negative impact this process can have on your credit.

Are there credit requirements?No.No.
How long does it take?It varies, but typically between 3 to 5 years.It varies, but typically between 3+ years.
Are there tax implications?No.Yes. You might have to pay taxes on your forgiven debt.
Will it affect your credit?It could. Enrolling in a program itself does not affect your credit. But if you close credit cards as part of the plan, that could affect your credit. However, consistently making monthly payments will likely improve your credit score.Yes. If you enroll in a debt settlement program, your credit score will likely take a major, lasting hit.
Is it guaranteed to work?If you stay on track with your monthly payments, it will work.No. There is no guarantee that a debt settlement company will be able to negotiate your debts.

What is debt management?

Debt management involves working with a nonprofit credit counseling agency to pay off your debt over the course of a specific time frame — typically three to five years. The process is fairly simple: Once you enroll in a program, you make one monthly payment to your agency, which then gets distributed to your various creditors.

Below, we’ve broken down everything you need to know about debt management so you can decide if it’s the right option for you.

How does it work?

A debt management program helps a consumer manage his or her unsecured debt. You simply make one monthly payment to the agency, and they disperse that payment to your various creditors, according to Katie Ross, Education, Development & Housing Manager at American Consumer Credit Counseling. Typically, credit counseling agencies can negotiate to get lower interest rates on one’s debts.

“The benefit of being in a debt management plan is that agencies like ours help people get back on financial track,” said Ross. “We can help them better their credit card debt by working with their creditors to reduce their interest rate and their payoff time.”

Credit counseling agencies typically offer financial education with their programs, which can help consumers avoid getting into debt again. “You’re getting ongoing counseling and you’re getting financial education to learn how to manage your money and stay on track,” Ross added.

Who is it useful for?

Debt management is typically a good decision for consumers who are ready to tackle their debt but don’t want to take on something as serious as debt settlement or bankruptcy.

Those who meet the following criteria might benefit from debt management:

  • People who don’t want their credit score to suffer. If you have a decent credit score and you’d like to maintain it, you might want to consider debt management instead of debt settlement. Although closing credit cards as part of the program could impact your credit score, enrolling in a program itself has no impact, Ross said. Plus, maintaining your monthly payments will likely increase your score. In addition, many credit counseling agencies have agreements with credit card issuers that if a consumer is enrolled in a debt management program and sticks to it, they will not report negative information to the credit bureaus.
  • People who won’t need any additional credit during this time. If you’re enrolled in a debt management program, you will likely not be able to open any new lines of credit. Ross adds that when someone enrolls in a debt management program, most creditors will typically put a notification that says “CC” on the consumer’s credit card. This tells any lender who might be looking to extend that person credit that they’re working with a credit counseling agency.
  • People who want to learn about sustainable money habits. Debt management is particularly useful for people who want to learn about how they can improve their financial habits and avoid getting into debt again. Most programs come with financial education that can help you stay on track. “For most non-profit credit counseling agencies … a big part of the mission is to educate,” Ross noted. “So we provide lots of different resources — budgeting guides, spending plan information, ongoing phone support and counseling.”

How much does it cost?

The monthly fees associated with a debt management program are typically low. Ross said monthly fees are driven by state regulations (some have licensing requirements and some don’t) and therefore they vary.

Regardless of the state you live in, the fees should be minimal. “Make sure that the fees are reasonable and they’re not exorbitant, and there’s no hidden fees anywhere,” Ross said.

In addition, Ross said many credit counseling agencies will be willing to work with consumers who cannot afford enrollment fees. “If there’s a financial hardship, the agency needs to be willing to waive the fee or reduce a fee,” she said.

ServiceCost
EnrollmentThis fee should not be more than $75.
Monthly maintenanceThis fee is typically between $25 and $50 per month, and should not exceed $50.

How long does it last?

Typically, a debt management program lasts from three to five years, according to Ross.

When should you use it?

There are a handful of scenarios in which pursuing a debt management program makes sense. If the following statements apply to you, you might want to consider it.

  • You’re ready for change. If you’re ready to finally improve your financial habits, debt management could be for you. The educational resources provided can help you make meaningful changes to help you avoid getting into debt again.
  • You’re looking to pay off debt without damaging your credit. Things like bankruptcy and debt settlement will damage your credit for years. But with debt management, you have the chance to maintain or even improve your credit score while repaying your debt.
  • You want a streamlined strategy for paying off your debt. Debt management involves just one monthly payment, making the process simple and straightforward.

What to watch out for

If you’re interested in enrolling in a debt management program, Ross advises checking for the following things when looking for a credit counseling agency to work with:

  • Nonprofit status. Make sure the organization you’re working with is a nonprofit.
  • Time in business. Check to make sure the company has been in business for at least seven to 10 years.
  • Membership status. Ross advises checking to see if the agency is part of a credit counseling association, such as the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCCA).
  • Third-party accreditation. Make sure the agency is accredited by a third party.
  • Complaints. Check with the Better Business Bureau (BBB) to make sure there are no complaints against the business.
  • Other requirements. Ross said you should also check to make sure the agency is licensed or bonded where they need to be.
  • Fees. As noted above, debt management plan fees should be reasonable and shouldn’t exceed $75 for enrollment and $50 per month.

What is debt settlement?

Debt settlement involves working with a for-profit company to have your debts negotiated. The idea is that by working with a debt settlement company, your debts will be negotiated to a lower amount and you’ll have less to pay.

Unfortunately, the debt settlement industry is rife with scams, and there’s no guarantee any of your debts will be settled. If you pursue this route, it’s imperative to do your due diligence. Read on for everything you need to know about debt settlement.

How does it work?

Consumers partner with a debt settlement company — sometimes referred to as a debt relief firm — who will attempt to negotiate the consumer’s unsecured debts to a lower amount. Each month, the consumer puts money in an account that is designed to pay off this negotiated amount once it is reached.

There is no guarantee that your debts will be negotiated, but if they are, it could be by as much as 50%.

You will likely need a minimum amount of debt to enroll in a debt settlement program. It depends on the firm, but minimum requirements are typically between $7,500 and $10,000.

Who is it useful for?

Debt settlement could be right for you if you have significant debt and you don’t anticipate being able to pay this debt off within a few years. It should be thought of as a last resort.

Those who meet any of the following criteria could consider debt settlement:

  • People whose debt is too significant for debt management. Typically speaking, debt management is a much better method for paying off debt. But if your debt is too significant for debt management and bankruptcy isn’t an option, you could consider debt settlement.
  • People whose primary concern isn’t their credit score. Debt settlement will have a major impact on your credit score, because you stop making your minimum monthly payments as part of the program. If your credit score is already poor and you think the benefit of getting out of debt outweighs the potential damage to your credit score, you could consider settlement.

How much does it cost?

Upfront costs vary with debt settlement. Some firms have no upfront costs at all. The primary form of payment is in program participation fees, as the firm will take a percentage of the total debt you’ve enrolled in the program.

ServiceCost
Program participation fees18% to 25% of total enrolled debt.
Miscellaneous feesFirms could charge additional maintenance and setup fees.

How long does it last?

It varies, but typically debt settlement lasts for three years or longer. It depends on the total amount of debt enrolled in the program and how long the negotiation process takes. Some programs will advertise that it could take as little as six months, though this is not typically the case.

When should you use it?

Considering debt settlement? If any of the following statements applies to you, it could be worth considering.

  • You have significant debt and not enough funds to pay it off. If you hold substantial debt (meaning upwards of $7,500) and don’t have the means to pay that debt off in a few years, debt settlement could be for you.
  • Bankruptcy isn’t an option. If you don’t qualify for bankruptcy or don’t want to pursue bankruptcy yet you hold substantial debt, settlement could be worth considering.
  • You want to get out of debt as quickly as possible even if it means your credit score will take a hit. Debt settlement will have a lasting negative impact on your credit score. If your desire to pay off your debt outweighs the potential ramifications to your credit score, then it might be an option worth considering.

What to watch out for

If you decide debt settlement is the right path for you, there are a handful of things you should be aware of:

  • Collection agency calls could intensify. Most debt settlement companies ask participants to stop making their minimum monthly payments as part of the debt settlement process. This means you could be hit with even more collection calls and letters.
  • Your credit score will suffer. If you do a debt settlement, your credit score will take a major hit. “As soon as you stop making your payments to your creditors, it’s going to get reported as a late payment,” Ross said. “Once you default altogether, your credit score is going to tank.”
  • There’s no guarantee your debts will be settled. No debt settlement firm can promise that your debt will be negotiated.
  • There are tax implications. If you enroll in a debt settlement program, you might still have to pay taxes on the full amount of debt before negotiation. Ross said laws vary on this from state to state.
  • You can’t be forced to pay fees on debts that aren’t settled. Be aware that debt settlement companies cannot charge you fees for debt entered into the program that wasn’t settled.

The debt settlement industry is not regulated and therefore it is rife with scams. If you’re interested in partnering with a debt settlement company, it’s important to do your research and vet the company. Check with the BBB to make sure the company has no complaints filed against them. You can also check to see if complaints have been filed with the state’s attorney general’s office.

Should you use debt management or debt settlement?

It depends on your personal situation. If the debt you hold can be paid back in a reasonable time frame, you want to take a safe path, and you’re interested in learning about how to build healthy financial habits, debt management is likely the right decision for you.

However, if you hold an immense amount of debt, but bankruptcy is not in the cards, debt settlement could be worth considering.

Regardless of the path you choose, here are some steps to help get you started:

Next steps: Pursuing debt management

  1. Find a nonprofit credit counseling agency to work with. You can consult the NFFC’s online database to find one in your area.
  2. Vet the agency appropriately. Check how long they’ve been in business, whether they have any complaints filed against them and whether they have nonprofit status. If necessary, consult a handful of agencies to find the right one.
  3. Get organized. Before you have a free consultation with the agency, get your finances in order so you know exactly how much debt you have.

Next steps: Pursuing debt settlement

  1. Shop around. It’s wise to consult multiple debt settlement companies before getting started. Compare things like monthly fees and enrollment requirements.
  2. Vet the company you select carefully. Check with the BBB to see if any complaints have been filed against the company you’re considering partnering with. You should also check to see how long they’ve been in business.
  3. Get everything in writing. If you decide to move forward with a debt settlement company, make sure you have the details of your agreement in writing.

Conclusion

You’ve taken the first step toward becoming debt-free, which is deciding you’re ready to buckle down and get started. From there, the most important thing is to do ample research and figure out which debt repayment strategy is best for you. Before you know it, you’ll be well on your way to becoming debt-free once and for all.

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Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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

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

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Updated – March 20, 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.

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Regular APR
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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.
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Regular Purchase APR
14.24% Variable
Intro BT APR
0% intro APR for 15 months on balance transfers made within 45 days of account opening. After that, a variable 14.24% APR will apply.
Balance Transfer Fee
Promotional Balance Transfers that post to your account within 45 days of account opening: Either $5 or 2% of the amount of each transfer, whichever is greater.
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Intro BT APR
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Regular Purchase APR
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Annual fee
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Credit required
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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.

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Brian Karimzad
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Brian Karimzad is a writer at MagnifyMoney. You can email Brian at [email protected]

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Are Balance Transfers the Best Way to Pay Off Debt?

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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.

Discover it® Balance Transfer

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Rates & Fees

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Discover it® Balance Transfer

Regular APR
14.24% - 25.24% Variable
Intro Purchase APR
0% for 6 months
Intro BT APR
0% for 18 months
Annual fee
$0
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.
Balance Transfer Fee
3%
Credit required
good-credit
Excellent/Good

Barclaycard Ring® Mastercard®

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Barclaycard Ring® Mastercard®

Annual fee
$0
Regular Purchase APR
14.24% Variable
Intro BT APR
0% intro APR for 15 months on balance transfers made within 45 days of account opening. After that, a variable 14.24% APR will apply.
Balance Transfer Fee
Promotional Balance Transfers that post to your account within 45 days of account opening: Either $5 or 2% of the amount of each transfer, whichever is greater.
Credit required
good-credit
Excellent/Good

Wells Fargo Platinum Visa Card

The information related to Wells Fargo Platinum Visa Card has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Wells Fargo Platinum Visa Card

Intro Purchase APR
0% for 18 months
Intro BT APR
0% for 18 months on qualifying balance transfers
Regular Purchase APR
13.74%-27.24% (Variable)
Annual fee
$0
Credit required
good-credit
Excellent/Good

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
Marianne Hayes |

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

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