Should you transfer your debt to a new credit card?
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MEMPHIS, Tenn. – Credit card debt has reached an all-time high in the United States: More than $1 trillion.
Interest on that debt is also growing extremely quickly: The average credit card interest rate was 22.85% at the end of April, according to WalletHub.
Quite a few credit cards will allow users to transfer their balances from another card. Many also offer no interest on the balance transfers for a limited period of time.
Is it a good idea?
“I think it could be a great strategy,” said T.K. Jones, the operations manager for Forward Memphis. “It may not be the right fit for everyone, but if you do your homework, this could be a great option.”
Here’s how it works: You can transfer thousands of dollars of your debt to a brand new card. The company might give you 12 months of 0% APR, or even longer.
In theory, you can consolidate your debt and pay it down quickly before it starts collecting interest again.
At Forward Memphis, Jones is a money coach who helps Mid-South resident pay down their debt. She recommended that anyone considering a balance transfer read the terms and conditions thoroughly.
Jones had this advice:
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Make a plan: If you have a year of no interest, divide your debt by twelve and commit to making those payments every month.
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Consider balance transfer fees: Some cards have fees that range between 3 and 5%.
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Research how much money you can transfer to the new card: You might not be able to consolidate all your debt.
“Have a budget,” Jones said. “Make sure that you’ve got the resources allocated to make that monthly payment and that you’ve committed to not incurring any new debt as you’re trying to tackle, pay off and lower your existing debt.”
Remember: The strategy only works if you actually pay down your debt in that timeframe.
“If you don’t have a plan, then you’re really defeating the purpose of the strategy that you were hoping to employ,” Jones aid. “You may find yourself incurring more debt and even being further behind than when you started.”
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