Money Hack: Pay Less Interest When Paying Off Your Credit Card Debt
If you have high interest credit card debt rolling over month to month, consider the following…
Imagine you have credit card debt totaling $10,000 for simplicity and the interest rate is 19.99%.
Your minimum payment is $200.
If you continue to make the minimum payment of $200, it would take you over 9 years (109 months) to pay off your $10,000 balance AND it would cost you a whopping $11,660 in interest!
Yikes!!
But what if you could pay more than the minimum payment, say $500 per month? It would take you a little over 2 years (25 months) to pay off the $10,000 balance and it would cost you $2,264 in interest.
That’s much better than the alternative of paying over $11,000 in interest but what about paying no interest?
Zero interest, please!
This is where you may want to do a balance transfer!
So the trick is to transfer your credit card balance to a new card that is offering 0% APR on balance transfers. Typically these cards offer 0% APR anywhere from 12 to 18 months!
But before doing this, you first want to determine how much you can actually afford to pay towards your credit card a month without getting into further debt.
This is important because if you miss any payments or do not pay the balance due in full before the 0% APR period expires, you will have to pay the accumulated interest racked up on the new card!
That’s how most cards work, but please read the fine print.
Ideally, 18 months would be more favorable over 12 months if you can afford a monthly payment of $500.
$10,000/18 = $555.56 versus $10,000/12 = $833.34
Great! 18 months it is!
→ So you evaluated that you can afford $556 towards your credit card payment for 18 months.
→ You pulled the trigger on getting a new credit card that offers 0% APR on balance transfers for 18 months.
→ You transferred your $10,000 balance to the new card.
→ 18 months later, you paid off the $10,000 balance…
…and you paid no interest!
Usually, there’s a fee for balance transfers of a few hundred dollars but it’s nowhere near the thousands of dollars you would have spent otherwise in interest.
Just a money hack to think about…
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