If you’re looking to save some money and balance your budget, the first place you should look is at unnecessary outflows of cash.
You know, the $4 Starbucks coffee you buy each morning, or the expensive lunches you treat yourself to on a daily basis.
But if you’re like me, or most Americans for that matter, you probably don’t want to give up your few joys in life.
So where do you turn? Well, one area that most Americans struggle with is credit card debt.
About Half of Credit Cardholders Carry a Balance
Some statistics reveal that roughly half of those with a credit card carry a balance each month. And 33% carry balances up to $10,000, with a median balance of $2,254.
Another 13% carry balances over $10,000, with a median balance of $17,366. Yikes!
Now let’s assume the average credit card APR is around 15%. That’s being somewhat generous by the way.
Average credit card balance: $2,254
Average interest rate: 15%
Monthly finance charges: $28.18
Annual finance charges: $338.10
As you can see, the average credit cardholder is paying about $340 in credit card interest annually. It’s really more if you factor in the compounding interest.
Okay, so we know a ton of Americans are throwing money down the drain each month by not paying off their credit cards in full, thereby subjecting themselves to finance charges.
And there’s a good chance you’re one of those people, especially if you landed on this website.
Bringing it all together, you can save a ton of money (and still buy all that stuff you like) by reducing your balance and/or credit card APR.
Lower Your Credit Card APR with a Balance Transfer
The best way to do so is via a credit card balance transfer, which will allow you to simultaneously lower your credit card APR and pay off your balance.
Essentially, you move your existing credit card debt to a 0% APR balance transfer, or better yet, a no fee balance transfer credit card with 0% APR, and each payment you make during the promotional period will lower your balance.
[How does a balance transfer work?]
So each payment made during say a 12- or 15-month span will tackle your existing debt, and you won’t accrue any new interest.
This is the easiest way to lower your credit card APR significantly, and should save you a sizable amount of money.
The only downside is that the balance transfer APR will eventually rise to the purchase rate after the promotional period ends. In other words, it’s temporary.
That said, your goal should be to pay down as much of your credit card balance as possible during the 0% APR period.
While you’re at it, you should also reduce your new spending to ensure you don’t get into more debt and wind up repeating the process.
If you simply call your credit card issuer and ask them to lower your APR, they’ll probably only lower it a few percentage points, meaning you’ll still be paying a ton of interest. So a balance transfer is way more worthwhile.
[Is a balance transfer a good idea?]
Tip: Keep your new credit card purchases and your balance transfer amount separate to avoid mixing things up and subjecting yourself to unnecessary interest. This means you need two credit cards, one for purchases and one just for the balance transfer.