Ways to repay balance transfer credit card debt before the offer ends
A balance transfer offer is a well known way to pay less interest on your credit card. Savers get to enjoy an extended period of 0% interest (or thereabouts) and use the time to hopefully repay their credit card at a rapid rate.
The reality however is that most people who do a balance transfer, fail to repay their debt in full and quite often come out the other end with more debt than when they started.
Here is a step by step guide to repaying your balance transfer credit card and really leveraging the interest free period so as to become debt free.
Balance transfers are like a second chance; don’t waste them.
Ask yourself this before you read on:
Does the balance transfer amount cover your old debt in full?
If yes, then:
- Transfer the debt to a new credit card: cancel the old card
- Hide the new balance transfer card and avoid using it
- Begin repayment strategies
If no, then:
- Cut up the old credit card to avoid using it still
- Divert incoming salary to pay down remaining old credit card debt
- Use the debt snowball method to repay the leftover bit of old debt
- Make minimum required payments to new balance transfer card
- Once old card repaid, rapidly begin repayment strategies on new balance transfer card
The top ways to repay a balance transfer credit card
To simplify the top tips for repaying a balance transfer debt, essentially it comes down to two things. Getting a balance transfer offer that goes for as long as possible while using every second you have available to smash your credit card debt.
Get a balance transfer card with a long interest free period
Some cards offer 3 months, others offer up to 16 months. The usual amount however is 12 to 14 months with 0% interest.
Divide your debt by the number of months you receive in your balance transfer offer – set your repayments accordingly.
For example, a debt of $5,000 over a 12 month 0% balance transfer offer would require repayments of $417 each and every month to repay.
While you pay 0% interest, use the savings on interest to repay your credit card faster
If you are coming from a credit card that charged you interest, use the amount of interest you normally would have paid as an extra repayment towards your new balance transfer card.
Getting a balance transfer credit card doesn’t mean you can rest easy. Instead it should be seen as a chance to go hard, stay strong and do everything in your power to repay the debt. A saving on interest doesn’t mean spare money; that’s the trap that people fall into.
Make extra repayments, no matter how small
Make sure you save the BPAY details of your new balance transfer credit card inside your internet banking.
Make monthly repayments at the set amount as outlined above but also look to make micro payments whenever possible.
Find yourself with $2.98 until tomorrows pay day? I doubt you can withdraw that from an ATM so why not transfer directly to your balance transfer debt?
Ensure you have an end of balance transfer offer strategy
The trick to a successful balance transfer offer is to ensure you don’t get to the end of the interest free period without either having repaid your debt or at least having a game plan on what to do with the remaining leftover debt.
Once the balance transfer period ends, the debt will revert to the usual purchase rate (and occasionally the cash advance rate on some cards I believe). This means that your debt all of a sudden will incur interest thus why you want to either be debt free by this time or have severely paid off the majority of your debt over the balance transfer offer period.
Don’t assume you will get another balance transfer card after the offer ends
Many people assume they can simply hop, skip and jump between balance transfer offers. The reality is however that many people get rejected for their next card because of their credit rating, changed circumstances or other reasons.
Never assume that you can simply change to another card. Use the now to repay your credit card and avoid the usual consumer trap of thinking there is ‘always tomorrow’.
In a relationship? Double team your repayments
Depending on where you are in your relationship (just met, dating, engaged or married) – use the balance transfer offer to make positive inroads for both you and your partner financially.
The best way to repay credit card debt is to follow all of the repayment strategies but do so times two. Yep that’s right, both of your double teaming the one debt.
It will pay it off twice as fast and together you will accomplish a great amount; who knows, next you could get rid of other debts such as car loans or even a mortgage?
Balance transfer mistakes to avoid
Strategies are one thing, though what can’t be overlooked is the need to avoid the common traps of balance transfer credit cards.
Here is some food for thought.
Don’t use your new credit card for purchases (in store or online)
The whole point of a balance transfer is to help you get out of credit card debt. The reality is however that 99% of people simply use the new credit card for purchases and continue the cycle of debt.
When you get your new balance transfer credit card, be sure to not use it for anything. No small purchases, no rushed presents, no online ‘must have’ purchases. Simply use the card for its 0% interest rate and that’s it.
Don’t use your balance transfer card for cash advances
It’s pretty much a given that cash advances on credit cards are bad. They are even worse however when they are coming off a balance transfer credit card as you are again simply propagating the debt cycle by relying on credit.
Don’t keep your old card instead of closing it post-balance transfer
Your new balance transfer credit card has repaid your old, though the burden of closing the old credit card rests on your shoulders. Be strong and ensure that you close that card immediately.
Many Savings Guide readers have mentioned this trap and sadly ended up spending on both cards and simply doubling their debt because they failed to close their old credit card after doing a balance transfer.