We all know that when we can’t pay off our credit card balances at the end of the month that we will be paying interest. What you may not actually realize is how much you will be paying back to the credit card company or how long it will take. This article will highlight how long it can take to get out of debt without a balance transfer credit card when you only make monthly payments of 5% or less.
The amount of money that we are going to use is $5,000 and the interest rate will be 17%, slightly above the national average. As you should know, the interest rates on credit cards are variable. This means you may not have the same interest rate throughout the balance of your credit card. And, because the Prime Rate which is used to determine variable credit card rates is at an all time low, your current interest rate will likely increase in the future. However, we will assume for our purposes that it will not change.
The first thing you can find out using a credit card calculator, such as the one available at the Federal Reserve , is how long it will take to repay the debt. If you pay 5% of your monthly balance at 17% interest it will take you 9 years and 3 months to pay off your credit card and you will have paid an additional $1934.00 to the card company in interest. Your monthly payments would be $250.00. These startling numbers are shocking, especially given the fact that most credit card minimum payments are 2%.
Now we will look at what you can save with a 0% APR balance transfer. If you can get a balance transfer with a zero percent interest rate for one year you could realize interest savings of $919.00 during the introductory period. If you apply this money to your debt, this would reduce your overall balance to $4080.00. When your interest rate returns to 17%, if you continue to pay 5% of the unpaid balance you have cut the time it takes to repay the debt to 8 years and 10 months. You will only be repaying $1650.00 in interest and your monthly payments will be lower at just $204.00. However, by keeping your payments at $250 per month or higher, you can reduce the time it takes to repay your debt. Plus, if you can secure a 0% rate from another credit card company once the first rate expires, you can continue to reduce your debt and keep interest expenses from piling up
-Jennifer Davide
To estimate how much you can save with a 0% APR balance transfer, please see our balance transfer calculator. For more information or to apply for a balance transfer credit card, please see the homepage of Smart Balance Transfers.
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