There's nothing fun about credit-card debt. An outstanding balance of $5,000 that is subject to 19.99 percent interest means you're paying about $1,000 a year just in interest. Imagine if that $1,000 could go directly to repaying the balance instead. You could pay it off in record time instead of stringing it out for many years.
If you're carrying credit-card debt, playing the balance transfer game could be the way out of your heavy debt situation. Just beware: There are pitfalls in the balance transfer game that, if not avoided, could end up making your situation worse, not better.
Playing the balance transfer game well requires financial maturity and personal discipline. Are you up to it? Should you wish to play, you'll need to adopt this strategy to come out a winner:
Find a balance transfer credit card application. You want one that offers at least 15 months of 0 percent interest, has no annual fee and a small, if any, balance transfer. Search at IndexCreditCards.com.
Fine print. Read the application very carefully. Know exactly what is in the terms and conditions before you apply.
Divide to conquer. Once you have the account and you transfer the balance, divide your outstanding balance by the number of months in the 0 percent introductory period. Lock eyeballs on that number. That is the amount you must pay each month for this to work.
Do not use the new card. This account is for one thing only — to facilitate paying the balance to $0.
Cancel the account from which you transferred the balance. Just close it and do not look back. Yes, this could knock a few points off your credit score for a few months. But paying off the new account quickly will help to recover those points.
Sounds easy enough, but let's not fool ourselves. Paying the balance quickly is going to take a lot of hard work and discipline. And there are pitfalls you must avoid:
Switcheroo. The terms and conditions will state that you may not qualify for the account for which you are applying, and in which case the bank may offer you a different account. This could be a big problem if you do not notice and then go ahead and transfer your balances to that account that may not have $0 interest and may also be subject to huge transfer fees. If this happens, you are not obligated to accept a different account.
Double trouble. If you fail to close the first account once you transfer the entire balance, prepare for trouble. Emergencies happen, and if you keep that account active, you'll find a way to use that account for something. Gradually the balance will creep back to what it was before.
Transfer fees. Ideally, you will find a balance transfer account that has $0 transfer fees. They do exist, but you have to search. Most have a transfer fee of $5 or 3 percent of the balance transferred, whichever is more.
Pulling off a credit-card balance transfer can offer a fabulous opportunity to pay off your credit-card debt. But it requires a steady hand a strong mind. You must be focused, determined and fully committed to a strategy that gives you the best chance at winning the game.
Mary Hunt is the founder of www.DebtProofLiving.com and author of 23 books, including her 2013 release, "The Smart Woman's Guide to Planning for Retirement." You can email her at [email protected], or write to Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.