It is a lot easier to get into credit card debt than it is to get out of it. (And usually, a lot more fun.) Getting out of debt is a truly frustrating and difficult task, not to mention an expensive one. While there are many options to help reduce the task and burden of repaying debt, the least expensive and often easiest way to do it is by taking advantage of 0% APR balance transfers.
By not using 0% credit cards, it would take a person with $5000 in debt on a credit card with a 12% interest rate over four years to be debt free. During those four plus years, that person would pay close to $1,500 in interest, most of which would be accrued during the first two years.
Here, we’ll explore how to use 0% APR balance transfer offers to quickly and efficiently eliminate $5000 in credit card debt. Instead of taking over four years, this method will take a little over three. And instead of costing you $1,500 in interest, your total cost will be about $225 or less in balance transfer fees.
What this strategy requires
1.) A good credit score.
2.) Consistently making an average monthly payment of $125
3.) Smart use of credit card offers
Year 1 – I can save how much?
The first step in this process is to apply online for a credit card that offers a 0% APR on balance transfers for one year. (You can find a complete listing of current offers in the balance transfer offers section of this website.) When you apply, choose a card with low balance transfer fees, such as one offered by Discover. For a $5,000 balance transfer, the maximum fee would be $75.
Once you’ve transferred your balance, make an average monthly payment of $125. During the course of this first year, the interest expense on the 12% card would have been $540 and you would end the year with a balance of $4,048. By using a 0% APR balance transfer credit card, you will have saved $465 ($540 less $75 in fees) during this year and reduced your end of year balance to $3575.
Year 2 – Have I really reduced my debt by 57%?
At the end of the first year, you’ll have reduced your debt by 29% and saved over $400 on interest. Unfortunately, your 0% rate is now expiring. As long as you have maintained your credit quality, the obvious next step will be to find a new 0% credit card. This shouldn’t be a problem. All you need to do is find a credit card from a different issuing bank to accept your balance transfer.
During the second year, you will save about $355 on interest and reduce your debt to $2150 dollars. Had you been paying interest all along, you would still have a balance of $2977, 40% more than your current balance.
Year 3 – The light at the end of the tunnel
You’ve avoided interest for two years and reduced your credit card debt by 57%. You’re almost in the clear. Again, find a new 0% balance transfer offer, transfer the remaining balance and continue making your monthly payment of $125.
At years end, you’ll have reduced your debt to $610. Had you paid interest during the preceding years, you would still owe $1770 or 35% of your original balance. Now, you only owe about 10%.
If you simply boosted your monthly payments by about $15, you’d be debt free. If not, you could make a lump sum payment or make a final balance transfer. If you choose that route, you’ll be out of debt in five more months.
The hardest part about getting out of debt is compounding interest. Fortunately, the 0% balance transfer can take interest expenses out of the equation and significantly reduce the time and cost ordinarily needed to pay off $5000 in debt. By using the strategy outlined above, you can save $1500 and get out of credit card debt about 1 year earlier than you would have without using 0% balance transfers.
Getting started only takes a few minutes. Unless you’re an athlete, actor or hedge fund manager, you’ll save more money in the next fifteen minutes than you might make during a full work week. And that’s before taxes.
All you need to do is compare current 0% offers at Smart Balance Transfers, apply online, and transfer your credit card debt.