How an Interest-Free Credit Card Balance Transfer Reduces Personal Debt

Interest-free credit card balance transfer deals have been hard to find since the introduction of the Credit Card Accountability, Responsibility and Disclosure Act. Those with a good credit rating should try to take advantage as it provides a golden opportunity to reduce personal debt.

What is an Interest-Free Credit Card Balance Transfer?

A balance transfer involves moving high APR credit card debt to a new card that doesn't charge interest. In an ideal world, the money saved goes towards clearing the balance. Provided a consumer has a good credit rating, acceptance is likely. Completing the new providers application form will result in the balance being moved across in about 30 days.

Balance Transfer Costs

A transfer fee of approximately 3% is charged for transferring the money. This means that the amount owed will actually increase in the short-term.
However, the initial cost will be heavily outweighed by the money saved over the medium to long term. Always check what the fee is before arranging a transfer as the costs do vary considerably amongst providers.

Reduce Personal Debt

An interest-free credit card balance transfer remains one of the most effective ways of reducing personal debt. According to the Consumer Action credit card survey in July 2008, the median rate of interest on credit card debt was 13.54%.



Example:

Mrs Smith has $10,000 outstanding on her card which means that she pays $1,354 of interest each year. Whilst the transfer fee initially pushes up the balance from $10,000 to $10,300, the balance reduces to $8,946 after 12 months.

Perform a new transfer every 12 months until any outstanding personal debt is cleared. It is important to reduce the credit limit in order to avoid the temptation to spend the money saved.

In order to benefit from an interest-free credit card balance transfer, discipline is essential. It allows a consumer to clear personal debt and maintain their credit rating without the need for a debt solution or consolidation loan. Balance transfer deals have become harder to find since the new credit card legislation was introduced, but using an online comparison site allows someone to source the best deals.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.