One of the strategies for reducing your debt more effectively is to use a balance transfer. Balance transfers are great because you can pay off your debt a little faster, since you don’t have to worry about interest. The best transfers are those that are 0%, and that have long introductory periods.
How Do Balance Transfers Help?
The reason balance transfers work at helping reduce credit card debt is because all of your payments go to the principal. Regularly, with credit cards, the interest detracts from actually reducing debt. This is because the interest is just a premium that you pay for borrowing.
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When you pay interest, you aren’t reducing the actual amount of money that you owe at a very rapid rate. This is especially true if you pay only the minimum. If you are pay $75 each month, but $37.48 of that is going to interest, just about half of your payment does nothing to reduce your debt. That’s not very efficient.
A balance transfer helps by allowing you to avoid paying the interest. For the period of time that you are paying 0% interest, your entire payment goes to reducing your debt. That automatically improves your ability to reduce your debt and improve your situation.
Making the Most of Your Balance Transfer Card
It’s a good idea to get the best balance transfer card you can. There are a number of rewards credit cards right now that offer 0% on balance transfers – and some even come with bonuses. If you can get a balance transfer card with a cash back bonus, you can apply that cash to your debt, and give your debt repayment another little boost.
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A longer 0% period is best, especially if you have a higher balance to pay off. The best outcome is to pay off your debt before the 0% period runs out. Once the introductory period is over, the interest rate will shoot up, and you could end up paying much, much more.
Create a plan that allows you to pay off your debt as quickly as possible. If you can, look for ways to earn more money, or cut back on unnecessary expenses. That way, you can spend a lot less as you pay down your debt.
One of the reasons that many consumers become discouraged with their debt situation is due to the fact that they don’t see progress. A balance transfer card, with 0% for the first few months, can help you make real progress, and pay down some of your debt.