I’ve been committed to living a debt-free lifestyle ever since my husband and I accomplished a mammoth goal of repaying more than $107,000 of debt — including more than $26,000 in credit card debt.
Over seven years, we chipped away at student loans, credit card debt, car loans and leases, a timeshare and an unrelenting tax bill. Before our debt-free journey, I thought as long as we could afford the minimum payment, taking on debt was OK. And since our credit scores were 750 or higher, we thought we were financially savvy.
However, when I resigned from my full-time job to pursue an entrepreneurial endeavor, our household income dropped by 30%, and we were forced to look at our debt with fresh eyes. Tackling $107,000 worth of debt required patience, consistency and a strategy we could both get behind. To wrangle $26,500 in credit card debt, we decided to use several introductory 0% APR balance transfer cards.
If you’re facing steep credit card debt with today’s high APRs, a balance transfer card could offer some breathing room to pay down your debt interest-free for a period of time. But it can also be a risky move. Here’s how my family used this debt repayment tool to maintain our momentum.
What is a balance transfer?
A balance transfer credit card lets you move debt from an existing credit card to a new account that generally provides a low or 0% introductory APR for a limited time. During this time — usually between nine to 21 months — you can chip away at your debt without stressing about high-interest fees setting you back.
Many balance transfer cards include a transfer fee that ranges from 3% to 5% of the total balance transferred. You can also only transfer up to the card’s credit limit (including the balance transfer fee). In most cases, paying a balance transfer fee is more affordable than continuing to pay steep interest on your balance — but you should do the math to see if this option makes sense for you.
Why I chose to use a balance transfer card
Before my husband and I applied for a balance transfer card, we started with the basics: budgeting and determining how much of our income we could dedicate to paying off our debt. I also experimented with different debt repayment strategies.
My first budget highlighted an extra $450 per month we had available to pay off debt. I earmarked this money for several small credit card balances that had a combined balance of less than $5,000. I used the snowball method, which calls for tackling the debt with the smallest balance first (while paying the minimum on all debts), then moving on to the next smallest. This strategy helped me pay my smallest card balance off in two and a half months.
Knocking out my first credit card debt and seeing that zero balance was a tiny win that showed me that debt-payoff strategies work. Like a snowball rolling down a hill, it provided the much-needed momentum to move on to the next credit card on my list.
But despite this momentum, I realized I’d need a different strategy for my larger credit card balances totaling just over $26,000. Because of high interest rates, most of our minimum monthly payment was going toward steadily accumulating interest rather than the principal balance.
We decided a balance transfer credit card made sense for us, because it would give us a respite from interest for a period of time. We also liked that it compiled our credit card debts into one monthly payment, giving us more motivation to stay focused on our goal.
How we chose the best balance transfer credit card for our debt
Here’s what we considered when we evaluated balance transfer credit cards:
The lowest introductory APRs
Introductory annual percentage rates, or APRs, can vary, but there are several 0% introductory APR credit cards available for balance transfers. I considered only balance transfer offers that included a 0% APR, so that more of my payment would be applied to reducing my overall credit card balance instead of interest charges.
Evaluate balance transfer fees
Most balance transfer offers include a balance transfer fee that can range from 3% to 5% of the total balance being transferred. Though I don’t remember the exact balance transfer rates when I used a balance transfer, it’s likely we paid anywhere from $600 to $1,000 in transfer fees on $20,000.
You’ll need to compare the fee against how much interest you’ll pay on your existing credit card account to make sure the balance transfer doesn’t cost more. There are some balance transfer offers that don’t charge a balance transfer or annual fee. However, they typically offer a shorter intro APR period, giving you less time to pay down your transferred balance.
The 0% APR time frame
You need to know if you can pay off your balance during the introductory APR period, so compare offers to find the right fit for your repayment schedule. Because we had a significant amount of credit debt to repay, I applied only for balance transfer offers that had an introductory period of one year or more. I knew I needed extra time to pay down my balances, since I could pay only between $500 and $1,000 each month.
To figure out how much you need to allocate toward a balance to pay it down within a card’s promotional period, divide the balance you’ll transfer by the number of months in the introductory period. You also want to add any fees into this calculation.
For example, to pay down a $5,000 balance with an 18-month balance transfer card with a 3% balance transfer fee, you’d need to pay just over $286 each month to pay it off before it begins to accrue interest.
Though a balance transfer helped us successfully reach our goal, I strongly caution anyone considering this option to weigh the pros and cons first to make sure you don’t end up in a worse financial situation than when you started.
Here are some of the benefits and drawbacks we experienced or considered before using a balance transfer.
Built-in motivation: The intro APR expiration date helped me stay focused and motivated because I wanted to pay off as much of the balance as I could before the standard APR kicked in.
Fees: Each time we used a balance transfer to pay off a credit card, we had to determine if paying an additional fee was worth it.
My debt-free journey wasn’t perfect
Our journey out of debt was full of trial and error. I applied for the first balance transfer card nearly two years into our debt payoff journey. The first one, a Discover card, offered a 0% introductory APR for 13 months.
We paid off the Discover balance two months after the 0% introductory rate ended, incurring a small amount of interest at the standard APR. Since our balance was significantly smaller after the introductory period ended, the extra two months of interest didn’t end up hurting us.
We also used two Chase balance transfer cards to move a credit card balance of $6,400 and a home equity line of credit balance of $13,600 to two separate Chase cards, both with a 0% introductory rate. Between a growing debt snowball payment, pay increases and tax refunds, we were able to pay off our entire $26,500 in credit card debt within two years.
My advice for anyone tackling a large debt
Paying off debt can be a marathon for some, myself included. I read plenty of strategies from financial experts and regular people who had accomplished the same goal I was chasing. Through trial and error, we landed on a mix of approaches that helped us stay focused on our long-term goal.
Using a balance transfer offer with a 0% introductory APR has risks that shouldn’t be taken lightly. You could end up with more debt than you started with if you don’t seriously commit to living within your means and controlling your spending. However, it can be an excellent tool to help you accelerate your debt repayment process.
I wasn’t able to completely avoid interest and ended up paying three separate balance transfer fees for my debt. But I didn’t give up even when things didn’t go perfectly. And I learned how to budget and worked toward big money goals — a lesson that’s continued to help my family as we turn toward investment and savings goals.
As you strengthen your habit of working from a budget and figure out which debt repayment process works best, let your interim wins motivate you to remain focused on your goals until you’re officially debt-free. You’ve got this.
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