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Debt-Free Strategy:

Balance Transfers

Part 1

Many credit card companies offer sign-on bonuses for consumers looking to transfer a balance from an existing card to a new one.  These deals may give you the opportunity to pay off, or at least shrink, your total debt without worrying about high interest accumulation.

 

There are some limitations to balance transfers, though:

 

  • They only really work for credit card debt.
  • Oftentimes, a one-time fee will be applied to any incoming balance transfers.
  • After any promotional periods, the interest rate on a balance transfer will increase based on your credit report.  This rate is often equal to or higher than the purchase interest rate on the card.
  • If you have a significant amount of credit card debt, you may not be able to consolidate all of this debt onto one card.

 

If any of these factors are a turn-off for you, or if the majority of your debt is not on a credit card, we suggest skipping ahead to the next section on Personal Loans.  If you think a balance transfer is a good place to start eliminating your debt, let’s get started.  

 

You’ll need the most recent statement balance, the APR, and the issuing bank for each of your credit cards.  These can all be found on a copy of your statement, but you may also be able to find them through your online account or by calling your credit card company.  We’ve included a worksheet on the next page for you, or you can make note of this information in a secure document or notebook.  

 

Your Statement Balances

You will want to note the total statement balance, but if you also have cash advances or promotional rates (such as an introductory 0% interest rate that is still active) you will want to section each of these balances off before we get to the next step.  As stated above, all of this information can be found on your account statement, and most credit card companies will section off each section’s balance toward the bottom of your statement.   

 

Your APRs

Again, you will want to write down the APRs for each individual section.  Keep these numbers together, as we will be referencing which balance has which APR in the future.

 

Your Issuing Bank

The issuing bank is the actual organization that manages your credit card account – sometimes this information is hard to find, especially for retailer credit cards.  For instance, Comenity Bank issues credit cards for Victoria’s Secret, GameStop, Gander Mountain, and dozens of other retailers.  You will need to know this because you can only transfer a balance to a different bank than the one currently managing it.

 

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Now that we have all of this information laid out in front of us, let’s talk about strategy.

 

  1. Compile a list of good balance transfer cards, looking at promotional deals, balance transfer fees, and interest rates after the promotional period is over.  Be sure to note if you already have debt with a given bank.  You can find reviews of the best balance transfer cards at WalletPath.com.
  2. Begin applying to these cards, starting with the best offers.  As long as you aren’t planning to apply for a mortgage or auto loan in the near future, don’t stress about the hard inquiries right now.      
  3. Once you have been approved for a card, begin by transferring the balance with the highest interest to this new card.  If you did not receive a high enough credit limit on this first card to transfer your entire debt, continue applying.  
  4. Continue working your way down from your highest interest balance to your lowest.  Remember if you have any balances at 0% there is no point in transferring them at this time.
  5. Do not charge any purchases to these new cards.  This step is very important!

Now that you have successfully completed your balance transfer(s) you can continue to our section on Paying Down Your Debt to learn the best strategies for getting rid of these balances all together.

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