One way to pay off debt faster is to transfer your high interest debt to a credit card with a lower interest rate. You can do this with balance transfer credit cards, where you’ll get a period of time with a low rate, ensuring each payment you make goes toward reducing principal, not just interest.
When you sign up for a balance transfer credit card, you need a plan to pay off your debt within the introductory period. Avoid taking on more debt. New purchases get charged at the regular interest rate, so if you can’t stop using your card, you’ll end up in more debt once the introductory period expires and the rate shoots back up to 20 per cent.
Best Balance Transfer Credit Cards
The best balance transfer credit cards offer zero per cent interest and a lengthy introductory period. MBNA’s Platinum Plus MasterCard currently has the best offer – zero per cent interest rate on balance transfers for 10 months, and no annual fee.
If you carry a $5,000 credit card balance at the standard 19.99 per cent rate, you can save $515 in interest charges and pay off your debt two months faster by using a balance transfer card. Here’s how:
Transfer your balance to the MBNA Platinum Plus card and start putting $500 a month toward repaying your debt with the goal of eliminating it before the 10-month interest free period expires.
The same repayment schedule on the card with the 19.99 per cent rate will take an extra two months to pay it off and cost you $515 in interest.
Beware, sometimes there are up-front fees associated with a balance transfer. For example, MBNA charges 1 per cent of the amount you’re going to transfer. So if you transfer $5,000, you’ll be charged $50.
Related: Avoid These Credit Card Products
Here’s a look at the best balance transfer credit cards:
|Card name||Balance transfer rate||Duration||Regular interest rate|
|MBNA Platinum Plus||0 per cent||10 months||19.99 per cent|
|Scotia Value Visa*||0.99 per cent||9 months||11.99 per cent|
|RBC Rewards Visa Gold||1.90 per cent||10 months||21.99 per cent|
|PC MasterCard||5.97 per cent||4 months||19.97 per cent|
|Capital One SmartLine||5.99 per cent||3 years||7.99 per cent|
*$29 annual fee
When you pay credit card interest, you don’t make much of a dent in the actual amount of money you owe. This is especially true if you only pay the minimum. If you pay $100 a month, but $50 goes toward interest, half your payment does nothing to reduce your debt.
One of the reasons people get discouraged with their debt situation is because they don’t see progress. Balance transfer credit cards, with zero per cent interest for the first few months, can help you make real progress, and pay down your debt faster.