Paying off credit card debt is a great idea but can be taxing if you try to pay off too much at once. The best way to start is either refinancing your debt or opting for a lower interest rate which in the end can help lower your overall debt.
The best tool to use is a 0% APR card to try to lower your balance. However, you still have to evaluate your own financial situation first. Below, we will help you answer that question as well as help answer any other common questions that come with the card itself.
How Does Debt Consolidation With a 0% APR Card Work?
0% APR cards are a whole lot easier to understand than they look. Especially since most credit card companies offer it when you first join their company as a promo. Once you get approved for one, it’s best to move your debt onto the card and start paying it off immediately.
If you can’t get approved for a 0% APR card, try applying for a lower APR card in the meantime. You’ll still be paying less than your current card and over time you’ll be able to apply for another 0% APR card which you’ll more than likely be approved for.
Benefits of This Method
The three main benefits of backing your debt onto a 0% APR card are:
Interest Savings: The main reason you’re putting your debt onto the card is to save rather than let your debt pile up. With larger APR cards, you are going to have to keep on paying off debt until you run out of money. With a 0% APR card you’ll end up saving quite a bit.
Simplicity: By combining your debt onto one card you only have one payment to worry about a month compared to a variety of payments on different cards. Not to mention, if you manage to apply your debt to a 0% APR card, you can easily move balances to and fro with any necessary penalties or monthly fees.
Comparatively Low Risk: When you compare to other methods of debt consolidation, this is a fairly low-risk option. Other options have more dire consequences if you are unable to make payments; you could end up losing your house. With a 0% APR card, no such outcome is possible.
Things to Watch Out For
Though this is a common method people use for debt consolidation, there are still some risks to be on the lookout for. These include:
Late Payments: If you have a history of making late payments on your bills, this is probably not a good strategy for you to use. These 0% APR cards are rather strict. One late payment in the introductory period can result in the low APR getting canceled. If this is the case, you will often be left paying a high-interest rate immediately on your large balance.
Not Paying the Card Down Before the End of the 0% APR Period: That low APR will not last forever. It is crucial to pay off as much of your debt as you can before it ends. If you do not, you will be left paying a high APR on your large debt balance.
Fees: Even though it may look like a great deal, there are always fees you need to pay. Most companies who provide 0% APR cards charge a 3% fee every time a balance is moved onto the card. This can add up quickly, especially if you plan on moving a number of large balances onto it.
You May Make the Problem Worse: Once all that debt is off your original cards, it can be tempting to start using them again. It is important to resist this urge as doing so can result in more debt. It takes a lot of discipline, but if you do not have that, this may not be the debt consolidation method for you.
The Big Takeaway
Like every other financial decision, consolidating debt with a 0% APR card has its pros and cons. This method of debt management would work well for someone with a good credit score who is able to pay off the card quickly. If you meet these criteria, now is the time to do some research to find the best balance transfer card for you!