If you owe $1,000 on a credit card, you’re probably paying a lot of interest on that card. This is all money that you’re wasting making your credit card company richer. But there’s something you might be able to do to save some of your hard-earned cash even if you can’t just write a check to pay off your card.
This money-saving move could leave you with far lower interest costs
If you want to drastically reduce the interest you’re paying on your credit card, you could opt to take advantage of a balance transfer offer.
A balance transfer offer is an offer by a card company to entice you to transfer your balance. For example, you could get an offer that allows you to pay 0% interest on transferred balances for 12 or 15 months.
Featured offer: save money while you pay off debt with one of these top-rated balance transfer credit cards
Now, there’s usually an upfront balance transfer fee that ranges from around 3% to 5%. But you could still save a lot even after the fee because dropping your rate down to 0% makes a huge impact.
How much would a balance transfer save you if you owe $1,000?
The specific amount that a balance transfer would save you depends on a few factors, including how high your interest rate is right now and what you’re currently paying on your credit card.
The table below shows what you might be able to save if your card charges the average interest rate of 21.59% now and you make a 2% minimum payment required by your card issuer.
| Card type | Current card | 0% balance transfer card |
|---|---|---|
| Starting balance | $1,000 | $1,030 (assuming 3% balance transfer fee) |
| Annual interest costs | $213.53 | $0.00($30 fee for balance transfer) |
| Ending balance after one year | $976.17 | $808.25 |
Data source: Author’s calculations
And this table shows your potential savings if you pay $69 per month (around the amount you’d need to pay to end up with a $0 balance by the time a 15-month promotional 0% rate expires).
| Card type | Current card | 0% balance transfer card |
|---|---|---|
| Starting balance | $1,000 | $1,030 (assuming 3% balance transfer fee) |
| Annual interest costs | $151.53 | $0.00($30 fee for balance transfer) |
| Ending balance after one year | $323.55 | $202.00 |
Data source: Author’s calculations
As you can see, whether you’re making only the minimum payment or you’re paying enough to become debt-free by the end of the balance transfer period, transferring your balance to a new card can save you a lot of money.
In fact, if you’re making minimum payments alone, you’d save $213.53 on interest charges by switching to the balance transfer card. Even after accounting for the $30 transfer fee, you’d have avoided $183.53 in unnecessary credit card financing costs.
Should you do a balance transfer?
Moving forward with a balance transfer may seem like an easy call. After all, why wouldn’t you want to drop your rate from upward of 20% down to 0%, even if you have to pay a small fee to do it?
There are a couple of caveats:
- Ideally, you should pay off the balance in full by the time the promotional period ends. Otherwise, your rate will jump up to the standard rate on that card. If the balance transfer card has a higher rate than your current card and you’ll still owe a lot when the 0% rate ends, you could theoretically end up paying more over time.
- You don’t want to feel as if you’re making progress when you aren’t. Transferring a balance doesn’t solve your debt problem; only paying off your balance can do that. You can’t use balance transfers as a substitute for a real, concrete plan to become debt-free ASAP.
Keeping these caveats in mind, here’s what you should consider doing if you owe money on your cards.
- Find a balance transfer off with a long 0% APR period and a low transfer fee. You can check out your options on The Motley Fool Ascent’s list of the best balance transfer offers).
- Calculate how much you’d have to pay each month to repay your full transferred balance. If you owe $1,000 and have a 15-month offer, you’d have to pay around $69 a month.
- Work that amount (or as close to that amount as possible) into your budget so you can become debt-free by the time the 0% rate ends. Consider automating your payments so you don’t miss one.
A balance transfer isn’t a substitute for a debt payoff plan, but it is a powerful tool that can make debt payoff easier. If you owe $1,000, or any amount on your credit cards, try to take these steps today to benefit from interest savings and become debt-free more easily.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.