It is also a terrific method to rack up even more debt and make a difficult financial position much more difficult to manage. Even more perplexing, a promotional offer to transfer balances might exacerbate either circumstance. Before You Make an Application for a New Card With a Lower Interest Rate, Find out first whether the 0% APR is offered to everyone authorised for the card or if it is contingent on the applicant's credit rating. Because you won't know what interest rate you'll qualify for until after you've submitted your application, you may wish to avoid the second sort of offer. Why subject yourself to the lure of having more accessible credit if you can't even utilise the new card to get a better interest rate on your existing balance?

Will It Save You Money?

If you can reduce the interest you pay on your credit card debt, you will, without a doubt, be able to save money. But depending on the terms of the offer and the costs, it's possible that the savings won't justify the hassle. Do the arithmetic first before you take the plunge.

Imagine that you have a balance of $3,000 and an annual percentage rate of 30%. (APR). This indicates that the interest you are now required to pay amounts to $900 per year. It is possible to come across a promotion that does not charge a cost for transferring debt and offers an introductory period APR of 0%. However, suppose you will be required to pay a 3% balance transfer fee since this is a typical rate. In this particular scenario, the transfer of your balance of $3,000 will set you back $90. If you transferred your debt to a card with an annual percentage rate of 27%, the interest you would have to pay each year would be $810; when you included the balance transfer charge of $90, you would have just about broken even after a year.

Which Gets You Out of Debt Faster?

You may also utilise a reduced interest rate as an additional incentive to pay off your debt sooner. Imagine that you have the financial means to pay off your amount of $3,000 at the rate of $300 per month. The following is an explanation of how that procedure might change depending on the interest rate:

Scenario No. 1

Total debt: $3,000

The interest rate is now 30%.

Debt payment: $300/mo.

Number of months needed to become debt-free: 12

The total amount of interest paid is $497.

Scenario No. 2

Total debt: $3,000

15% is the interest rate.

Debt payment: $300/mo.

Eleven months till complete debt freedom.

The total amount of interest paid is $226.

Compared with Scenario No. 1, which gets you out of debt one month later, Scenario No. 2 gets you out of debt one month earlier and saves you $271. You may determine how long it will take to pay off your credit card debt using the monthly payments and interest rates specific to your circumstances by using a payment calculator for credit card debt that is available for free online.

Should You Keep Your Old Account Open?

After you have moved the balance from the card with the higher interest rate to the card with the lower interest rate, you should consider what to do with the card with the higher interest rate. A school of thinking advises you to cut up the card so that you may avoid giving in to the temptation of having an additional credit line open.

Conclusion:

If paying off your debts is your primary objective, then you should give decision-making that contributes to that objective the highest importance. Keep that older credit card if you have the self-control to do so, but don't use it for anything. If you have to, put it away in a drawer or lend it to a friend for a little while so they can keep an eye on it.

Exception:

Suppose you are planning to apply for a mortgage shortly. In that case, you should avoid taking actions that might reduce your credit score, such as getting a new credit card or terminating a card with a higher interest rate. Instead of playing the game of transferring balances across credit cards, you should prioritise paying off debts with higher interest rates first, followed by obligations with lower interest rates.

Procedure To Use The New Card

Before increasing your credit limit, you should seriously consider how much more temptation you can successfully avoid. The most important card to watch out for is the newest one. Suppose you want to take advantage of a balance transfer offer with a low promotional APR. In that case, you should refrain from making new purchases with the credit card to which you've moved your debt unless the new card also provides 0% interest on purchases and 0% interest on balance transfers. Because it currently has the balance-transfer debt, it most likely does not provide a grace period on new purchases, and you do not want to begin incurring extra interest.