This is part 1 of 3 in a series where I expand on the post where I said you can save money by reducing your interest rate. I used to have a lot of high interest credit card debt and at one point I felt like I would never be able to get out from under the mountain of debt that I had gotten myself into.
I realized that I had to find different ways to save money and one of the ways to do this was to reduce the amount of interest that I paid on the debt I owed. I knew I was not able to completely rid myself of the debt because I did not have money to pay off the entire balance so the next best thing was to manage the debt that I did have, until I could pay it off.
One of the methods I used to reduce the interest payments was to do a balance transfer. I simply moved the balance from the high interest card to a lower interest card and ended up reducing my interest payments significantly with just a few clicks.
Of course there are a few things to look out for when you are doing a balance transfer. These include but are not limited to:
- Transfer fees
- Interest rate
- Promotional period
Transfer fees are the fees that you may be charged in order to have the privilege of transferring your debt from one card to another. Ideally you will want to do a balance transfer when there is no transfer fee at all, but lately those opportunities are getting more and more scarce.
If you do have to pay a transfer fee it is a good idea to calculate which of the options may be the best for you. Most transfer fees are either a set amount or a percentage of the amount that you want to transfer. It is wise to take the time to calculate the total cost of each option in order to select the one that will make the most financial sense in your situation.
Interest rate is the new rate that you are being given on the new card. In order for your balance transfer to be successful you need to have a new rate that is significantly lower than your original rate. Having a much lower rate will make the reduction in interest really visible and you will also feel much better about the amount of money that you will be saving every month.
Promotional period is the time frame that the balance transfer will last and the associated terms that go along with that time frame. The terms of the promotional period may vary from card to card, and may even be different on the same card with each balance transfer.
You may get a transfer where it allows you to pay 0% interest for six months and then the interest rate goes up after that. You may also get a transfer situation where it allows you to pay 3% interest for the life of the balance or any sort of combination of rates and months. It is wise to pay close attention to the details in your promotional period because in some cases the interest rate jumps to level that is even higher than the original rate that you were trying to lower.
This is just ONE of the ways that you can save money on interest payments until you can finally get rid of the debt. I have used this method in the past with a bit of success but that was at a time when there were more 0% offers for the life of the balance.
The idea balance transfer scenario would be one where there were NO transfer fees and you got 0% interest for the life of the balance…but good luck finding that now.