Borrowers are missing the best way to pay down credit card debt

Borrowers are missing the best way to pay down credit card debt

Consumer debt soars as historic inflation persists

Collectively, Americans owe more on credit cards than ever before.

Fortunately, 0% balance transfer credit card offers — which are “one of the best weapons Americans have in the fight against credit card debt” — are even more than a year agosaid Matt Schulz, chief credit analyst at LendingTree.

Yet 37% of those with credit card debt don’t know there are balance transfer offers, according to a recent Discount rate report.

Here’s how they work and how to use them to your advantage.

Credit cards are one of the most expensive ways to borrow

From month to month, credit card are part of Very expensive ways to borrow money. Annual percentage rates for credit cards now sit at nearly 20%, on average, also an all-time high.

At nearly 20%, if you made minimum payments on that average credit card balance, it would take you more than 17 years to pay off the debt and cost you more than $8,213 in interest, Bankrate calculated.

Yet many Americans continue to borrow ever-increasing amounts. And as credit card balances grow, Americans’ confidence in their ability to pay bills declines.

Interest-free or low-interest balance transfers can help

Dan Brown Sword | Source of images | Getty Images

How to Make the Most of a Balance Transfer Offer

There could be a catch: nearly half of consumers who take advantage of a balance transfer offer don’t pay off the balance during the introductory period which comes with little or no interest, according to some studies.

“These maps can be a really good tool, but people need to understand how best to use them,” Schulz said.

How Balance Transfer Credit Cards Can Help Pay Off Your Debt

If you do not repay the balance during the initial term, the remaining balance will be charged a new annual percentage rate, which is generally around 23%, on average, in line with the rates of the new loans.

Additionally, there may be limits to the amount you can transfer and the associated fees. Most cards have a one-time balance transfer fee, which is usually around 3% of the tab, but there can also be an annual fee.

Late payment may also void your offer without interest.

Making the best use of a balance transfer comes down to making those payments on time and aggressively paying down the balance during the introductory period.

Alternatively, Schulz advises cardholders burdened with high-interest debt to contact their issuer directly to ask for a break on interest rates.

Alternatively, borrowers may also be able to refinance into a low interest personal loan. Those rates have also increased recently, but at 10%, on average, they’re still well below what you currently have on your credit card, according to Schulz.

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