How to manage debt with a balance transfer card

If you’re dealing with large balances on several credit cards, you may benefit from debt consolidation with a balance transfer credit card. Balance transfer cards typically offer a 0 percent intro APR (annual percentage rate) on balance transfers for a set period, often between 12 and 21 months. Consolidating your balances with this type of card can give you a chance to pay down your principal faster while avoiding interest.

Here’s how to use a balance transfer card to manage your credit card debt:

1. Take stock of your existing balances

First, add up the balances on your credit cards to find the total amount you want to consolidate. You’ll need this number to develop your budget for paying off your debt. Also, note the APRs of your current credit cards, which will be helpful when you compare balance transfer offers.

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Figure out your repayment budget

Next, decide how much money you can dedicate to paying off your credit card debt each month. To maximize your interest savings, you’ll want to make substantial progress toward paying down your consolidated balance during the introductory APR period — if not pay it off entirely. You should plan to make well above the minimum payment while your introductory offer is in effect.

Budgeting apps can help you figure out a financial plan, but you can also do it the old-fashioned way. Look at your monthly income and subtract how much you spend on necessities like rent, utilities and food, as well as on other debt payments, like student loans or car payments. The portion of your income left over is the amount you have available to repay your credit card debt.

Be aggressive with your repayment plan

Paying off your debt during the introductory APR period can help you save big on interest charges, so it’s important to be aggressive with your repayment plan.

If the amount of money you have available to repay your debt isn’t as high as you hoped, consider taking on some extra work temporarily to increase your income during the introductory APR period. For example, you could do some gig work in the evenings or start a side hustle on weekends and use the additional earnings to pay down your balance.

Another option is to decrease your expenses. This may be easier said than done, but if you can find a way to cut your spending and sustain it over the introductory period, you can direct those savings toward debt repayment.

2. Select a balance transfer card

The right balance transfer card for you will depend on your budget and goals. You may be inclined to research no-interest credit card debt consolidation right away, but you’ll want to consider a few things before jumping at the first balance transfer card you find.

• What are the credit requirements? Most balance transfer credit cards require good to excellent credit. Check your credit score before you apply so you know where you stand.
• What are the terms? Don’t make the mistake of applying for a balance transfer card before you understand the terms. Carefully read and understand any limits on the amount you can transfer, the length of the 0 percent APR period and the time frame you have to transfer a balance upon opening an account.
• Are there any fees? Balance transfer fees can be 3 percent to 5 percent of the total balance you transfer and typically have a minimum amount.

Use a balance transfer card calculator to see how much you’ll pay in fees and interest for each card you’re looking at. Then, you can calculate how long it will take you to pay off your balance with each option.

You can also use a credit card payoff calculator to check how much interest you’ll owe if you leave your balances on your existing cards. Compare this to the results for the balance transfer cards to estimate how much you would save with different options.

If you need as much time as possible

If you can’t make large monthly payments, you’ll likely want a card with a long introductory APR period. For example, the Citi® Diamond Preferred® Card is an attractive choice that offers a 0 percent introductory APR on balance transfers for the first 21 months after account opening (after that, the 17.49% - 28.24% (Variable) APR kicks in). There’s a 5 percent balance transfer fee ($5 minimum), and balance transfers must be completed within the first four months after opening your account.

The Wells Fargo Reflect® Card is another good choice. It offers a 0 percent intro APR for 21 months from account opening on purchases and qualifying balance transfers made within 120 days from account opening, followed by an 17.24%, 23.74%, or 28.99% Variable APR APR thereafter. The balance transfer fee is also 5 percent (minimum $5).

3. Make the most of the introductory APR period

Among the top benefits of opening a balance transfer card with a promotional APR is the reprieve you get from paying the standard interest rate — even if it’s for a limited time only. It’s essential to manage the card well and take full advantage of this opportunity to pay off your balance and get a handle on your debt.

Initiating the transfer

First, make sure that the balances you want to consolidate are accurate and that you initiate the transfer promptly. The clock on an introductory APR period usually starts ticking as soon as you open the account. You should initiate the transfer right away to get as much time as possible to pay a lower rate (or no interest at all, if you have a 0 percent intro APR offer).

Also, be aware that some cards come with a deadline to transfer balances, which might be 60, 90 or 120 days from account opening. Issuers generally charge the standard APR on balances you transfer after that deadline has passed.

If the balance transfer limit on your new card isn’t high enough to transfer all your existing balances, put your cards in order from highest to lowest APR. Transfer the balance from the card with the highest APR first, then the second highest and so on, until you have consolidated the maximum allowed.

Pay on time

With balance transfers, it’s essential to pay your bill on time. If you pay late, you’ll incur fees, which would offset some of the savings you gain from consolidating your credit card debt. Additionally, falling behind on your payments will likely cause you to lose your introductory APR, and you could even face a penalty APR instead.

While you need to pay at least the minimum each month, you’ll make progress faster if you pay more. Divide the amount you want to pay off during the introductory period by the number of months it lasts to get an idea of how large your payments should be. For example, if you have an intro APR for 12 months and you owe $6,000, then paying at least $500 per month will keep you on track to eliminate your debt by the time the introductory period is up.

Many cards apply different terms for balance transfers and for purchases, so check the purchase APR before shopping with your balance transfer card. You likely won’t enjoy a grace period for purchases on your balance transfer card, as you’ll be carrying a balance each month. This means that until you’ve paid off your entire balance to earn back your grace period, any new purchases will attract interest right away.

What to do as you near the end of your introductory APR period

Your credit card company will start charging a higher rate on your remaining balance when the intro APR period ends, so it’s essential to know when that will happen. Mark the final day of your introductory APR period on your calendar. You may want to set up an alert on your phone to remind yourself a week or two before the introductory period is up.

• Can you pay now? If you’re able to pay off the remainder of your balance while you’re still in the introductory period, that’s ideal. You’ll avoid a jump in interest when the promotional period ends, and the credit card debt you consolidated will be taken care of.
• Do you need to pay later? If paying off the entire balance is not possible, you could transfer the balance to another card with an introductory APR offer. In this case, you’ll need to once again come up with a plan to repay the consolidated debt.
• Need another option? Alternatively, you could try to negotiate the APR with the credit card company. However, even if the company agrees to lower the rate, you probably aren’t going to get an APR that’s as good as the promotional offer.

Alternative ways to manage your debt

Using balance transfer cards with 0 percent intro APRs can be a great way to pay off debt quickly, but they may not be right for every situation. If you’re unsure whether you should get a balance transfer card or whether you’d qualify for one, here are alternatives to consider.

Debt snowball or debt avalanche

The debt snowball and debt avalanche methods are debt repayment strategies that aim to eliminate debt quickly by paying off balances one at a time. You can easily set up both methods on your own, and neither requires special purchases, taking out new loans or paying additional fees.

With the debt snowball method, you pay off your debts with the smallest balances first, building momentum as you go. Start by organizing your debts from the lowest balance owed to the highest. Then, use all of your available funds to pay extra toward the debt with the lowest balance each month (while still making minimum payments toward your other debts). Once you pay off the first bill, use the additional money you now have available to attack the next smallest balance, and then the next, until you’ve paid off all your debts.

The debt avalanche method uses a similar philosophy of attacking one debt at a time. However, instead of paying off your balances in order from lowest to highest, you pay the debt with the highest interest rate first (while still making minimum payments on the others). When the debt with the highest interest rate is paid off, you work on paying down the debt with the next highest rate, and so on. This method could help you save more money in interest than the debt snowball, but it can be harder to build momentum quickly.

Debt consolidation

Similar to using a balance transfer card, a debt consolidation loan helps you combine all your high interest debts into a single loan with a lower interest rate. This new loan pays off all your old debts, which means that you only have one monthly payment to make. Debt consolidation can be a good fit for those with high interest debt at variable rates, although you’ll need to ensure that the consolidation loan offers a lower fixed rate before moving forward.

Credit counseling

Seeking advice from a reputable, nonprofit credit counseling agency is a good alternative to using a balance transfer card, especially if you’re struggling with your debt. These agencies can help you set up a debt management plan. In most cases, you pay the agency each month, and they pay each creditor on your behalf.

Debt settlement

If you’re in an extremely precarious situation with your debt, pursuing a debt settlement strategy may be an option. Debt settlements are reached by negotiating directly with your creditors to pay less than what you actually owe to settle your debt. This is done either on your own or by working with a debt settlement company, and you typically stop paying on your debt while negotiations are underway.

But pursuing a debt settlement strategy is risky. Always be careful when vetting your debt settlement company options, as many programs may be scams. And, not only could the strategy affect your credit score, but your creditors also might reject your offer — leaving you owing not only your original creditors, but also the debt settlement company you hired. This path could eventually lead to you having to file for bankruptcy.

The bottom line

If you manage them well, the best balance transfer credit cards can help you pay off high-interest credit card debt without the weight of additional interest on your balance. Plan ahead, select a card with an intro APR offer that’s right for your budget and steadily pay down your balance during the introductory APR period to get the most value from the card.