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Should I Consolidate My Credit Card Debt With a 0% Card?
Published on May 28, 2014
Committing to paying off your credit card debt is a smart idea. If you’re just getting started, a good first step is finding a way to lower your interest rate – this will mean faster progress and lower costs in the end.
One possibility is using a 0% card to consolidate your high-interest debt. But what does this mean, and should you consider doing it? Take a look at the details below to decide if this option is right for you.
What it means to consolidate with a 0% card
If you’re not familiar with what it means to consolidate your debt with a 0% card, the concept is fairly simple: Credit card companies offer limited-time 0% periods on some of their cards. If you apply for one and get approved, you can move your high-interest debts onto the 0% card. This is known as a balance transfer .
Once you’ve moved all your high-interest balances onto the 0% card, those cards are considered paid off. You’ll then start paying on the 0% card until the debt is settled.
Nerd note. If you don’t have very good credit, you might not be eligible for a 0% balance transfer deal. In this case, another option is to apply for a card with a low ongoing APR. These cards tend to be easier to qualify for, and you’ll still get the benefit of a lower interest rate than you have on your other cards.
Benefits to taking this approach
There are a lot of great reasons to consolidate your credit card debt with a 0% card. For example:
Interest savings – Obviously, the main advantage to consolidating your debt with a 0% card is that you’ll save money on interest. As of May 2014, the average credit card interest rate was hovering around 15%. If you’re carrying a balance on several cards charging this rate and you’re able to move them to a 0% card, you’ll save hundreds of dollars (possibly thousands) in interest.
Simplicity – Consolidating several debts onto one loan or card makes your financial life easier. You only have to worry about making one payment every month, and won’t have to deal with the conundrum of which card to pay first. Plus, consolidating with a 0% card is one of the most hassle-free options out there. As long as you qualify for the card, moving your balances onto it is a breeze.
Comparatively low risk – Compared with other consolidation options, moving your high-interest debt onto a 0% card is a low-risk choice. For example, if you use a HELOC — a home equity line of credit — to consolidate your debt and then are unable to make payments, you could lose your house. With a 0% card, you don’t have to worry about this type of outcome.
Pitfalls to watch out for
Although a lot of people choose to use a 0% card to consolidate their credit card debt, there are drawbacks and risks to consider. For instance:
Fees – The most significant drawback to consolidating with a 0% card is the fees associated with it. Most issuers of 0% cards charge a 3% fee every time you move a balance onto it. This could be a big expense if you’re transferring several large balances. If possible, look for a card that doesn’t charge this fee.
Not paying off the card before the 0% period is up – It’s important to remember that 0% periods don’t last forever; most are only good for 6-12 months. If you’re not disciplined, you’ll end up paying the ongoing APR on a very large balance.
Paying late – If you’re typically not good about paying your bills on time, signing on to a 0% offer probably isn’t for you. Making even one late payment during your 0% period will likely result in the deal being canceled. If this happens, you’ll have to start paying the ongoing interest rate right away. Again, this could mean you’ll end up paying a high rate on a very large balance.
Making the problem worse – When you consolidate your credit card debt with a 0% card, it’s important to resist the urge to charge up the original cards again. If you do, you’ll end up in even more debt. If you know you won’t be disciplined enough to stop swiping, a different consolidation method might be better for you.
The takeaway. Consolidating your credit card debt with a 0% has benefits and drawbacks. In general, this strategy is best for people with good credit and the ability to pay off the 0% card fast. If this sounds like you, consider looking for a balance transfer deal today!