Using Balance Transfers to Get Out of Credit Card Debt

To say that getting out of credit card is difficult is an understatement. A person with $5,000 in credit card debt paying a 14% interest rate can expect to spend close to $1,000 over the course of three years to be debt free. This figure assumes a steady monthly payment of $200 and no new charges.

Fortunately, consumers with good credit can reduce both the time and the money wasted on interest substantially by taking advantage of 0% balance transfer offers. Just how much you can save by transferring high interest balances to 0% credit cards may surprise you. During one year, a 0% balance transfer can provide over $400 in savings and reduce your overall debt by 45%. Below, you can analyze the savings on a month by month basis and see how you can utilize balance transfers to get out of debt in as little as two years while saving hundreds of dollars on interest.

Reduction of Debt with a 0% Balance Transfer
Reduction of Debt without a Balance Transfer
Months
Fees
Monthly Payment
Ending Balance
Months
Interest
Monthly Payment
Ending Balance
1
150
200
4950
1
58
200
4858
2
0
200
4750
2
57
200
4715
3
0
200
4550
3
55
200
4570
4
0
200
4350
4
53
200
4423
5
0
200
4150
5
52
200
4275
6
0
200
3950
6
50
200
4125
7
0
200
3750
7
49
200
3974
8
0
200
3550
8
46
200
3820
9
0
200
3350
9
45
200
3665
10
0
200
3150
10
43
200
3508
11
0
200
2950
11
41
200
3349
12
0
200
2750
12
39
200
3188
Total Fee Expense
Total Payments
Total Debt Reduction
Interest Expense
Total Payments
Total Debt Reduction
$150
$2400
45%
$588
$2400
36%

 

How Balance Transfers Help

After 12 months, a person who does a 0% balance transfer will reduce their debt by 45% and save $588 on interest. While standard balance transfer fees of 3% will reduce interest savings by $150, a person who uses a 0% balance transfer credit card will save $438 over the course of 1 year and reduce their credit card debt 16% more than a person who does not take advantage of a balance transfer.

If it is possible to obtain a new 0% credit card when your initial 0% period expires and you continue to make $200 monthly payments, your total credit card debt will be reduced to $432 at the end of 2 years. If you increase your payment to $240 a month during the second year, you will be debt free in just under two years!

Because it may be difficult to obtain a 0% APR a year from now, if we assume the interest rate on your new credit card goes from 0% to 14% and you continue to pay $200 a month, you will be debt free in 2 years and 4 months, having spent only $282 in interest.

Without balance transfers, getting out of $5,000 in credit card debt at a 14% interest rate will take a total of three years. In that time, you will have racked up $947 in interest expenses. Thus, even if you are only able to obtain a 0% APR for 1 year, you can cut your interest expense by over $600 and get out of debt 8 months quicker.

If, on the other hand, you are fortunate enough to qualify for a 0% rate today and again next year, you’ll be debt free in two years and close to $1,000 richer. This is a deal that seems too good to be true, but the numbers just don’t lie.