So, you’ve read Miriam’s blog about getting a handle on your credit cards, you’ve asked for a lower rate from the companies you still hold cards with, and now you’re ready for the next step – transferring the debt you do have to zero interest or low interest credit cards.
Be forewarned – if you do this and don’t change your spending habits, it’s just a step toward more debt. This is a step in debt reduction, not in increasing your available credit, though it will likely have that effect as well. Unless you’re worried that you won’t be able to restrain yourself, or your current card carries a recurring fee, you don’t actually have to cancel the cards whose balances you’ll be transferring. As a matter of fact, it can hurt your credit score to do so. Initially you might simply choose to lock the cards away. I know someone who froze hers in a block of ice so she wouldn’t use it, figuring that if she really needed it, she could always thaw it out.
Your goal is to take the balances from high percentage cards and transfer them to introductory zero percent or low fixed percent cards. Assuming your credit is decent, here are my top two picks:
Discover Platinum – It’s 0% for 12 months, then it goes up to ~11%. Even the 11% is lower than the card we transferred it from. Hopefully, we will have most of the transferred debt paid off before the introductory rate ends. On a $3,500 debt transfer, we’ll save close to $500 in interest. The only negative is that not every place takes Discover. No annual fee on this card.
Do you have more debt than that? Is it going to take years to pay it off? If you qualify, you’re better off with American Express Blue’s fixed rate of 4.99% for balance transfers for the life of the loan. That’s an excellent rate. There’s a caveat here. Don’t get sucked in to the 0% on purchases here; it jumps up to ~15% after the introductory period is over. If you make purchases on top of the balance transfer, usually the lower percentage (the loan) is paid first, leaving you with a ~15% debt. This card is great for balance transfer, but put the physical card away. It’s not for purchases. It also has no annual fee, so is great for long term.
If your credit score is good, and your credit card debt is on a card with a higher percentage rate than 5%, you’re throwing away money. If your debt is relatively small and it can be paid off in a year, use a 0% introductory rate card. If it’s going to take longer than that, transfer it to a low fixed rate.
Next: What cards to use when you do have your debt under control.