Credit card debt is a fact of life for most Americans. In fact, one in three households carries credit card debt of more than $10,000. Add to this the fact that the average interest rate on credit card debt is nearly 15% and rising, and we can see a potential for economic catastrophe. One solution to this looming crisis is education – more Americans need to learn about the potentially destructive effects high interest payments have on their wealth, and what they can do about it. 

One solution that makes sense for many credit card holders is a balance transfer. Balance transfer offers are available from most credit card issuers and have introductory rates as low as 0%. For a reference of what a 0% balance transfer can mean to a credit card holder who carries a high balance, consider the following:

• A credit card holder with a debt of $5000 at a 15% interest rate and who pays a minimum payment of $200 per month toward the debt will take nearly 3 years to pay off the total amount.
• That same credit card holder who transfers his balance to a 0% interest rate for one year making that same $200 a month payment, and whose rate then returns to 15%, will have his debt will be paid off 5 months sooner… and will save more than $600.

What if the $5000 debt carries a 20% interest rate?

• The credit card holder who transfers his 20% debt to a 0% card for one year and makes his monthly payment of $200 will find his debt paid off 6 months sooner, for a savings of nearly $800.

These options for credit card interest and debt savings are available to any card holder with a good credit history. In these financially difficult times, any savings that we can reap from 0% balance transfers is worth taking. Knowing your options for saving money on your credit card debt can mean money directly back to your bottom line.

Fortunately, consumers have had success fighting back.  Yesterday, Dominic wrote in to tell us how he got his interest rate increase nullified:

“I went to pay my bill today and found [that his rate had been increased]. I also never saw the rate increase notice in the mail so my option to opt out had expired. I called and talked to three levels of customer service and demanded to be placed in the opt out program. Just keep asking for the supervisor, which even then didnt help me. I spoke to the supervisors manager and after much persistence they allowed me to close my account at the original 6% interest rate. Their 30% apr is such a scam. The 22% option was such a joke still! Dont take their no’s for a answer, remember you are paying money to them, they should work for you!” http://www.smartbalancetransfers.com/blog/2009/07/citibank-raises-interest-rates/#comment-6105

As Dominic’s story makes clear, getting an interest rate increase reversed is not a simple process.  However, as I’ve repeatedly stated, persistence does payoff.  If you are unsuccessful one, try again.  And again.  And again.  Always be extremely polite and always ask for a supervisor (or a supervisor’s supervisor).  If you do not succeed on your first or second call, continue to call until you get the result you desire.

If, after many calls, you are unable to get a rate reduction, seek out a credit card with a 0% balance transfer deal, such as those found on Smart Balance Transfers.  Accepting an interest rate in the high teens or twenties can cost upwards of $200 for every $1,000 of your credit card balance every year.  If your current company insists on charging you an absurd interest rate, then finding a 0% balance transfer credit card should be a big financial priority.

So, to address the question of this balance transfer agnostic (and perhaps encourage others to take advantage of 0% balance transfers while they are still available), I put together a month by month breakdown to demonstrate how much a person with $5,000 in credit card debt can save on interest and reduce their debt load in just one year.

To view this chart and learn more about using balance transfers  to reduce debt, please see the article, “Using Balance Transfers to Get Out of Debt“.   If this doesn’t convince you that balance transfers are the best deal in town, nothing will.

If you fall into the latter category, the best approach to getting out of credit card debt may be the use of a consumer credit counseling service.  Unfortunately, the web is littered with shady debt consolidation firms promising miracle debt reduction.  Avoid sites like these, as they can sock you with high fees, ruin your credit score, and ultimately leave you in a worse position than you were when you sought their assistance.

That said, consumers who need help getting out of debt can utilize the resources available from the National Foundation for Credit Counseling at www.nfcc.org.

At this website, you can search for a credit counselor in your area that can help you get your credit card debt in control.  The companies listed at www.nfcc.org do not promise to cut your debt by 50%.  They work with your credit card companies to help you work out payment plans and lower your interest rates to levels you can afford.

For example, using the FTC calculator, a person with $10,000 in debt on a credit card with a 14% interest rate will spend $2,996 in interest and need NINE YEARS to pay off their credit card debt.

Unfortunately, the reality is much worse, especially if a person only pays the monthly minimum.  One reason for this is the assumption that a person will make equal payments of $500 per month, every month, for NINE YEARS and make no new charges.

In reality, most people will have a hard time coming up with $500 per month, especially if they are only required to pay 3% of the balance.

As disheartening as it may seem, it could take a person much longer than a DECADE to pay off $10,000 in credit card debt and the interest expense could easily be $5,000 or more.

That, dear reader, is the sad and unnerving truth. 

Now, please don’t let this scare you.  Facing credit card debt is scary, but necessary.  And there are steps a person can take to reduce interest costs, especially in the short term.  As the title of this website implies, making smart balance transfers can help REDUCE the COST of repaying credit card debt and REDUCE the TIME it takes to do so.

Here’s an example, using our balance transfer calculator, of how a person with $10,000 of credit card debt at a 14% rate can get out of debt with less pain and lower expenses.

Step 1:  Transfer you balance to a credit card that offers a 0% APR for 1 year.  While this will incur a 3% fee equal to $300, you will save over $1400 in interest over the course of one year.  Once the fees are subtracted, you will have a net savings of over $1,000 during the next year.

If you pay $500 a month during the next year, your balance will be reduced to $4300 by the end of the year.  You’d be halfway home already.  Even if you only pay $400 a month, you’ll still eliminate close to half your debt in one year.  Not nine.

Step 2:  At the end of 1 year, transfer your balance to a different card that offers a 0% interest rate.  This, unfortunately, was much easier to do during the past few years.  However, people with very good credit may be able to do this.  So, assuming you can get another year with no interest, you’ll only need to pay $400 a month and voila, you are out of credit card debt in two years.

Now, because it may be difficult to get a 0% rate next year (or perhaps next month), lets assume you now have $4500 in credit card debt at the same 14% interest rate.  Using the FTC debt calculator, it will still take 8 years and cost over $1300 in interest to get out of credit card debt.  However, this assumes a monthly payment of only $225.  If you pay down your debt by $400 per month, you’ll be free of credit card debt in about a year and a half.  Add in the year with the 0% APR, and the total time to get out of $10,000 in credit card debt is under three years.  That’s a lot less painful and expensive then nine years.

0% balance transfers are an essential tool for consumers looking to get out of debt.  Unfortunately, credit card companies are making it tougher to get 0% rates every day.  However, if you act quickly and apply for a balance transfer credit card today, you can save yourself a lot of money, a lot of stress, and a lot of time.

Credit card debt can be nightmare.  Belive me, I’ve been there.  And I’ve gotten out.  In the past five years, I’ve helped a lot of others as well.  If you’re reading this, you’ve made the most important step:  you’ve faced your credit card debt situation head on.  The next step is to get it under control.  And the place to start is with a 0% balance transfer.  You can view details of these offers, apply online at our website, and start the process of getting out of debt today. 

For additional information on current balance transfer options, please see the 0% balance transfer comparision section of Smart Balance Transfers.

Unfortunately, consumers actively trying to reduce their credit card debt have a lot less options today than they did one year ago.  The reason for this is quite simple:  no one wants your debt.  Last year, banks fought over new customers, offering 0% rates that lasted for 15 months, no fee balance transfers with 0% rates that lasted a year, and fixed for life rates as low as 2.99%.  Today, those lucky enough to get approved for a new credit card can still get a 0% APR for a full year.  However, qualifying for these offers is getting more difficult by the day and, in the very near future, 0% balance transfers may not be available at all.

If you are serious about getting out of credit card debt, the first step is to apply for a credit card that offers a 0% APR on balance transfers for 1 year (you can compare offers here).  With a 0% interest rate, a person with $5,000 in credit card debt with a 14% interest rate can save close to $750 in interest charges alone.  And, although standard 3% balance transfer fees will reduce total savings to $600 for a year, the money you save on interest can be used to pay down your credit card debt instead of paying down newly accrued interest charges.

Failing to take action to reduce your credit card debt will only make matters worse.  If, for example, you chose to start getting out of credit card debt one year ago, you could have moved your high interest balance to a credit card with a 2.99% fixed interest rate for life.  Today, that is not an option.  Tomorrow, getting a 0% rate for a year may not be an option.  And as these options disappear, credit card companies continue to raise interest rates on consumers with good credit and long histories with their company.

The behavior of credit card companies towards consumers is utterly abhorrent.  Sadly, however, any person with credit card debt is at the mercy of their credit card company.  If you are reading this, then you are taking a step in the right direction.  The next step is to apply for a balance transfer credit card and secure a 0% rate while you can.  Otherwise, you may extend the time you spend in credit card debt hell even longer. 

For additional information on available 0% balance transfer offers, please see the appropriate section of this website.

Should you have any questions or comments, please feel free to leave a comment below or contact me directly.

I congratulate you for taking steps to get out of credit card debt, and hope my plea encourages you to take action.

Using the FTC calculator, I input the average American household credit card debt of approximately $8,000 and used interest rates of 10%, 12%, and 16% to find out how much long it would take, and perhaps most importantly, how much it would cost to pay off that debt by paying only the minimum payment.  My findings were a little unnerving.  Here are the examples:

1. A household with $8,000 in debt on a credit card with a 10% interest rate will spend $1,570 on interest over the course of EIGHT YEARS by paying $400 per month and adding no new credit card charges.
2. A household with $8,000 in debt on credit card with a 12% rate will spend $1,962 over the course of NINE YEARS by paying $400 a month.
3. A household with $8,000 in debt on a card with a 16% APR will spend a shocking $2,852 over close to a DECADE, again paying $400 a month.

Given these frightening figures, including the fact that, as a person reduces their overall balance, the required monthly payment will drop, I think the FTC calculator probably understates the length of time, as well as the interest cost involved.  For example, when the debt amount is cut in half, consumers would be tempted to pay $200 instead of $400.  Doing this could increase the time to repay debt by two or three YEARS, if not more.

In my opinion, the purpose of the calculator is to both educate consumers and make debt repayment seem reasonable.  However, with double digit interest rates, I think it is fair to assume that it will take most households at least a decade to get out of debt.

Fortunately, for the time being, credit cards are still offering 0% interest rates on balance transfers for 1 year ( I emphasize still, as many companies are dramatically pulling back on these offers, and a visitor to site in three months may find that 0% balance transfers only last for 3 or 6 months.)  Nevertheless, 0% balance transfers are still here, and doing a 0% balance transfer can help reduce the time it takes to pay off credit card debt substantially.  In the process, hundreds of dollars can be saved in interest.

Using both the balance transfer calculatorat our website and the FTC’s repayment calculator, we came up with some credit card debt repayment figures that are much easier to digest.  In fact, with 0% balance transfers, getting out of debt can take a fraction of the time it would take without them.  Here are a few examples:

1. If a  household with $8,000 in debt at a 10% rate does a 0% balance transfer and pays their debt down $400/month during that year, they will have $4200 in debt at the end of that year.  Then, using the FTC calculator, it would still take 7 years to repay the debt.  However, this assumes a monthly payment of only $210.  Better yet, the total interest cost will only be $810, more than $700 less than the orignal amount.  That’s not bad at all.
2. The same debt load on a card with a 12% rate would also take 7 years to repay.  However, the payments are only $210 and the total interest cost is $1,012, nearly half of what it would have been.
3. Lastly, an $8000 debt at a 16% interest rate obviously provides the most savings.  How much?  Instead of racking up close to $3,000 in interest expenses, the total cost to pay off the debt is $1,470, or less than 50% of the original amount.

It goes without saying that getting out of credit card debt is never easy.  However, the smart use of balance transfer credit cards that offer 0% interest rates can shave years off the time it takes to repay debt while saving hundreds, even thousands of dollars in interest.

To find out how much you can save with a 0% interest balance transfer, you can use our balance transfer calculator.  If you are ready to start saving, you can apply online for a 0% balance transfer credit card in the appropriate section of this website.

Getting out of credit card debt is always much harder than getting in to it.  However, the smart use of balance transfers can help you get on the right track and limit your interest costs substantially.