You are here: Home » Credit Scores » How Much Money Can You Save by Transferring Your Credit Card Balance?

How Much Money Can You Save by Transferring Your Credit Card Balance?

by

If you have high interest credit card debt, balance transfers can be a great way to save some money and pay off your credit cards more quickly. Basically, a balance transfer is a way to consolidate your debt on a credit card at a lower interest rate than what you are currently paying. Instead of paying interest rates of 20% or higher, you may be able to transfer your credit card debt to a credit card with a lower fixed interest rate than what you are currently paying; possibly as low as zero percent if you qualify for a 0% balance transfer credit card.

Determine how much you can save with a balance transfer

The first thing you will need to do is gather all your credit card bills and add up how much you owe and the interest rates on each card. If you haven’t done this before you may be shocked at how much interest you are paying! You may get angry once you see how much of your payment reduces your debt and how much goes straight to the lender. Use that as motivation to get out of debt more quickly!

After you determine how much you owe and the interest rates, you need to look at various balance transfer options and try to determine what your interest rates would be if you complete a balance transfer. Keep in mind that some credit card companies charge a balance transfer fee, so don’t forget to add that in your calculations. Then use to an amortization calculator and put in your new interest rate and the loan duration to calculate how much interest you will pay after you make the balance transfer. The difference is your savings.

For example, you can transfer a credit card balance from 20% to 0%, and pay a 3%-5% balance transfer fee. You can either add the balance transfer fee to your balance or pay it when you do the balance transfer. Either way, your new interest rate would be 0% and all payments would go toward reducing the principal of the loan. If you direct the interest savings toward your monthly payments you will reduce your credit card debt much more quickly than you otherwise would have. They key is not to add new debt as you go.

Comparing balance transfer credit cards

There are a couple different balance transfer options – a 0% APR credit card if you qualify, or a low interest rate credit card, which may be easier to qualify for. Some examples of each are listed below.

The most popular 0% balance transfer credit cards

0% balance transfer cards often seem like the best way to go, but there are usually fees attached to them. To determine how much you will actually save on a balance transfer you need to consider the balance transfer fees in your calculation. Take a look at these three 0% balance transfer card examples:

  • Example Card #1: 0% balance transfer for 18 months, 4% transfer fee, cash rewards.
  • Example Card #2: 0% APR for 18 months on balance transfers and 18 months on purchases, 4% transfer fee. No cash rewards.
  • Example Card #3: 0% APR for 12 months, 3% transfer fee, cash rewards, $100 sign up bonus.

Run the numbers for these various offers to see which one will save you the most money in the long run. Most of these 0% balance transfer offers will save you a substantial amount of money compared to paying credit card interest rates which hover in the 20%+ range.

Comparing low interest balance transfer credit cards

Low interest cards offer another solution to paying outrageous interest rates. Some low interest balance transfer credit cards don’t come with a balance transfer fee. Their interest rates may not be quite as good as a 0% balance transfer card, but the difference often isn’t very far off when you consider the fees that often come with a 0% balance transfer card.

These two cards are great options for those looking for a good low interest credit card to reduce their current interest rates, or for people who are searching for a credit card with low interest rates for making new purchases.

Other balance transfer options or debt consolidation options

You may be able to find a quality balance transfer credit card with your local credit union or bank, or through a job or organization to which you belong. Other options to help consolidate your debt at a lower interest rate are a Home Equity Line of Credit (HELOC), or by getting a peer to peer loan from a company like Lending Club or Prosper. P2P loans allow you to borrow money from individuals instead of a bank. If you have good credit you can often consolidate your loans at a much lower interest rate than many credit card interest rates, though not as good as a 0% balance transfer offer.

Which balance transfer option is best?

It depends on your situation – specifically how much debt you currently have, how quickly you can repay your debt, whether or not you can qualify for balance transfer credit cards, etc. But in most cases, it is well worth consolidating your credit card debt at a lower interest rate as long as you make the commitment to changing your spending habits and paying off your debt.


Published or updated December 12, 2011.
Print or e-mail this article:
Print Friendly

{ 11 comments… read them below or add one }

1 Financial Samurai

Gotta love those transfer fees. CC companies are smart cookies. Just make sure once you guys transfer, to CHANGE your spending habits. Often times, if they don’t get you on the front end, they’ll get you on the back end.

Be vigilant folks!

Reply

2 Ryan

True, but if you are at the point where you have changed your habits and are looking for a way to get out of debt more quickly, then a balance transfer can save a lot of time and money. These are only a good deal if you change your habits.

Reply

3 Credit Card Chaser

Exactly right – unfortunately too many people use a new credit card as an excuse to prolong bad habits rather than using a balance transfer offer to pay less interest as they get out of debt.

Reply

4 Financial Samurai

Indeed Ryan. Without changing habits, changing credit cards is just delaying the inevitable.

Taking advantage of a balance transfer should hopefully help spur someone to change though. But who knows.

Reply

5 Miranda

I love the idea of figuring out how much interest you would have paid, and then adding it to your payment. What a great idea! Interest is awful, since you don’t get anything for it, beyond the privilege of borrowing money. It goes straight into someone else’s pocket, and you have nothing to show for it.

Reply

6 Ryan

If you were going to pay the money anyway, it makes sense to continue paying toward your debt. Balance transfers should be a tool to eliminate debt more quickly, not an excuse to put your debt payments on hold (unless you need a temporary stay due to unemployment or reduced income).

Reply

7 Megastar

Great information. A lot of people really don’t know how much they are paying in terms of finance charges on their credit card balances. Educating people on the many options they have can help someone eliminate debt faster and become debt free.

Reply

8 Craig

How often can you go about switching? I am lucky I am not in that position, one people should not get themselves into in the first place. It seems like a last resort.

Reply

9 Ryan

You can do it as often as you can get accepted for a new credit card or low interest balance transfer. It will depend on many factors including credit score, credit utilization, how much one is transferring, etc. It should only be used as a tool to help you get out of debt though, not as a regular transaction to enable more spending.

Reply

10 Ken

Good points in your post. I’m currently looking to do this with a high interest card. I despise the high interest and am going to make a change. I think the key as mentioned earlier is to stop charging.

Reply

11 Ryan

You hit the nail on the head, Ken. If you can stop adding new debt and continue making the same payments, you will make some serious headway on reducing your debt. You will see incredible gains if you are able to complete a 0% balance transfer. It’s almost like compound interest in reverse! :-)

Be sure to check out the list of best balance transfer cards in today’s article. The Discover More American Flag card has 12 months at 0% (though it does have a 5% transfer fee). That’s still a big opportunity for savings!

Reply

Leave a Comment

Previous post:

Next post:

.