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If you have credit card debt, you’re not alone.
The average credit card balance for consumers in 2021 was $5,525, according to credit bureau Experian. And with an average annual percentage rate (APR) of 17.13% on accounts assessed interest in 2021, according to data from the Federal Reserve, you may find it difficult to make quick progress paying down your balance.
Balance transfer cards promise a way to pay off debt faster and save money at the same time, which is what makes them so appealing to individuals with credit card debt. If you qualify for a card with a 0% APR introductory offer, you could have months to pay off the balance without paying any interest, saving you money in the long run.
But balance transfers can be a double-edged sword: without a plan in place to pay off the debt in a timely manner, you could end up racking up a balance on the new card and end up right back where you started — or worse off than before.
If you’re trying to figure out if a balance transfer makes sense for you and how much it could save you on interest, here’s what you should know.
What Is a Balance Transfer?
A balance transfer is a process where you move the outstanding balance from one credit card to another. Usually, balance transfers are done to consolidate debt into one account and to get a lower APR.
“In some cases, you can get a better interest rate on a balance transfer,” says Todd Christensen, education manager with Debt Reduction Services, a non-profit credit counseling agency that serves consumers nationwide. “There may be a promotional rate, maybe at 0% for six months, nine months, or 12 months, with the idea that you’re going to pay down that debt faster with less interest,” he explains.
During the promotional period, the card will have a 0% APR. Once the promotional period ends, the regular APR will apply, and interest will accrue.
While a balance transfer can help you save money while paying off your debt, since your monthly payments will be going entirely to your principal balance instead of interest, it doesn’t solve your debt problem. Transferring your credit card balance to a new card doesn’t address the root issue behind what caused you to get into debt in the first place; it just moves the balance around. Without …….