2 Mistakes to Avoid When Paying Off Credit Card Debt
Credit cards give us quick and easy access to money, but they also come with a lot of pitfalls, and if you don't use them carefully, you can wind up buried in debt. If you're in this situation, thenone powerful strategy you can use to cut your debt is to transfer some or all of your credit card balances to a 0% introductory APR credit card.
Balance-transfer credit cards can give you a lot of breathing room by charging zero interest for several months. This can save you hundreds or even thousands of dollars as you pay down your credit card debt. For example, if you're carrying a balance of $5,000 at an APR of 18%, and you pay it off over the course of 15 months, then you'll end up spending $620 in interest charges. If you can instead transfer that balance to a 0%-APR card, then that $620 can stay in your pocket -- or help you pay off your debt even faster.
But there are two big mistakes you'll want to avoid if you're thinking of getting a balance-transfer card. Motley Fool analysts Michael Douglass and Nathan Hamilton discuss the details in the video below.
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Michael Douglass:So let's talk about traps you can fall into when you're trying to pay off your credit cards. Some folks fall into these traps. They're not reading the fine print (and there is a lot of fine print)...
Nathan Hamilton:There is a lot on there.
Douglass:...or they're overlooking some crucial details. I think there's two big ones that we should flag up, the first one being just missing that 0% APR window.
Hamilton:Yes, because with a balance transfer card, the main perk people are looking for is the balance transfer window, which for some cards goes as long as 21 months. [That means] any balance that you transfer over to that card [is not] getting hit with interest charges, so you're able to pay down that debt quicker.
But caveat. Fine print. Some credit card offers only allow you to get that 0% introductory APR if you make that balance transfer within a certain period. Some are 45 days. Some are 60 days. Some don't have a requirement for making the transfer within that period, but the offers do vary, so make sure to read the fine print to ensure that you're transferring a balance and, indeed, getting the 0% APR.
Douglass:Yeah, this is one of those times where the fine print actually matters, and you have to actually do something with it. And then let's also talk about paying balance transfer fees.
Hamilton:Yes, there are some cards out there. There's so much competition with credit cards that they're willing to battle for people's business for new cardholders by presenting some pretty good offers, and one of those is nixing balance transfer fees.
So if you look at a transfer, you're going to be hit with typically 3% or five dollars, whichever is greater on a balance transfer. [But one of the perks credit cards offer is] no balance transfer fee, which can help you pay down debt faster. You're getting the 0% interest APR. There are a few out there to consider. They are very solid credit cards and would be good options to look at.
Douglass:Absolutely. Good advice and something for folks to always think about. I mean, when it comes down to it, ask. You can't have it if you don't ask, and the worst thing they can do is say no. And maybe that tells you about what your future relationship with that credit card might look like.
Hamilton:Yes, when it comes down to personal finances, as we do with investing, whatever you can do to reduce fees is going to be a huge value add for your personal financial wealth.
Hamilton:That's obviously in place with credit cards, as well.
Douglass:Very much so. Well, check us out at fool.com/credit-cards for our list of the best balance transfer credit cards so that you can go ahead and get those fees cut. Thanks.
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