A common financial dilemma is how to get out of debt the fastest, cheapest way possible. It comes down to three fundamental steps:
- Don’t increase your debt.
- Reduce the interest rate you must pay.
- Reduce the principal balance of your debt.
When you slash your interest rate, you reduce the amount you have to pay each month. That extra savings can be the ticket to getting ahead so you can pay down more of your principal balance each month.
One of the easiest tools to cut the interest you pay on debt is a balance transfer credit card. While it may seem strange to use a credit card to help you get out of debt, savvy users leverage them to pay off debt faster. Keep reading to learn how these cards work.
How Does a Balance Transfer Credit Card Work?
If you’re struggling with debt, but still have good credit, using a balance transfer card is one of the easiest ways to reduce your monthly payments. It’s a special type of card that offers low or no interest during a promotional period if you pay down another account—such as a credit card or an installment loan—and move all or a portion of your balance to the transfer card account.
A typical balance transfer promotion ranges from six to 18 months after you make a transfer. After the promotion expires your standard rate will depend on your financial situation and credit score. And it could be much higher than the original interest rate you were trying to get away from.
With less interest owed to creditors during the promotion, it’s easier to stop relying on credit cards, save for emergencies, and put other financial safety nets in place.
How Does a Balance Transfer Credit Card Save Money?
By transferring your high-interest debt to a low or no interest card, you save money during the initial, promotional period. Your savings can be used to pay down transfer card, or any debt you owe, faster.
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