Using 0% Balance Transfer Credit Cards To Reduce Debt | CreditShout

Using 0% Balance Transfer Credit Cards To Reduce Debt

By Kevin / November 2, 2009

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Using balance transfer credit cards can be an effective way to combat your credit card debt, especially if you have a large amount of debt on a card that has a high interest rate. By taking advantage the 0% APR for 6 – 12 months on balance transfers offered by some cards, you can transfer your existing credit card debt to the new card, and pay no interest for the next 6 to 12 months. This allows you to pay down your balance faster, since you’re no longer bogged paying a ton in interest every month.

What To Know Before You Apply

It’s important to note that this only works if your going to pay down your debt in that 6 – 12 month grace period, because for many cards there is a fee associated with transferring the balance. This fee generally ranges from 2 to 5% of the amount you transfer to the card. Although this may sound like a lot of you have a large balance, the amount you save in interest over the 6 – 12 months with 0% APR makes it worth it. You also need to make sure to always make your payments on time. If you can’t pay on time, it’s not worth transferring your balance because one late payment could land you with an interest rate that’s just as high as your current card.

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Credit card companies created the 0% APR balance transfer option as a way to bring in new customers. Although it may seem like a marketing ploy at first, it can be an extremely effective strategy to cut down your credit card debt quickly if you take advantage of paying off as much of the debt as you can during the 0% APR period.

Lower Transfer Fee or Longer 0% APR Period?

When you look into the balance transfer cards you’ll find that some cards will offer the 0% APR rate for a longer period of time, with a higher initial balance transfer fee, while others will have lower initial balance transfer fee with a shorter introductory rate. I recommend taking advantage of the cards with a higher transfer fee. Discover Card has just brought back a 0% APR for 12 months rate on their Discover More American Flag Card. This is currently our choice for best balance transfer credit card because it’s the out there with a 12 month 0% APR rate.

If your looking to take advantage of using 0% APR balance transfer credit cards, be sure to check out our list of best balance transfer credit cards for 2010.

Important: Most cards give you an option to transfer the balance of your existing cards when you apply. I recommend holding off on this at first and transferring your balance after you are approved for the card. We’ve found that you have more of a chance of being approved for the new card if you opt out of the balance transfer option initially. Discover gives you up to 2 months to transfer a balance and take advantage of the 0% rate, so you have plenty of time if you decide to hold off.

Transferring Your Balance

Many people who are stuck with a mountain of credit card debt have that debt on more than one card. To effectively use balance transfer cards, you want to figure out which of your current cards have the highest interest rates, and transfer the balance from those cards first. The idea is to eliminate your highest interest cards, and although another card may have a higher balance – the card with the higher interest rate may be costing you more in the end.

Finally, after you transfer your balance from your existing card or cards, you want to consider keeping the old accounts open. Closing active credit card accounts can have a negative effect on your credit score, so as long as you don’t have to pay an annual fee you probably want to leave the accounts as they are for the time being.

Always keep in mind that not all credit cards were created equal, so always make sure to do your research and read the fine print before you apply.

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone.

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