Debtors lack the easiest way to repay bank card debt

Overall, Americans owe more credit cards than ever before.

Thankfully, there are even more 0% transfer credit card offers — which are “one of America’s best weapons in fighting credit card debt” than there were a year ago, said Matt Schulz, chief credit analyst at LendingTree.

Yet 37% of people with credit card debt are unaware that credit transfer offers exist, according to a recent Bankrate report.

Here’s how they work and how you can use them to your advantage.

Credit cards are one of the most expensive ways to borrow money

According to TransUnion’s latest report, total credit card debt hit a record $930.6 billion at the end of 2022, up 18.5% year over year.

Average balances rose to $5,805 over the same period, TransUnion found.

Credit cards are one of the most expensive ways to borrow money by the month. Annual effective interest rates on credit cards are now averaging nearly 20%, also an all-time high.

At nearly 20%, making minimum payments on that average credit card balance would take more than 17 years to pay off the debt, and cost you more than $8,213 in interest, Bankrate calculated.

Yet many Americans continue to take out ever-increasing amounts of credit. And as credit card balances climb, Americans lose confidence in their ability to pay their bills.

Interest-free or low-interest balance transfers can help here

Dan Brownsword | Image source | Getty Images

How to make the most of a balance transfer offer

There might be a catch: nearly half of consumers who take advantage of a credit transfer offer don’t pay off the credit during the interest-free or zero-interest introductory period, some studies show.

“These cards can be a really good tool, but people need to understand how best to use them,” Schulz said.

If you don’t pay off the balance in the initial period, a new APR will be applied to the balance, which generally averages around 23%, which is the same as new loan rates.

In addition, there may be restrictions on transfer amounts and fees. Most cards have a one-time transfer fee, which is usually around 3% of the tab, but there may be an annual fee.

Late payment can also nullify your interest-free offer.

The best use of a balance transfer boils down to making those payments on time and aggressively paying off the balance during the induction period.

Alternatively, Schulz advises cardholders burdened with high-interest debt to contact their issuer directly to request a rate cut.

Otherwise, borrowers may be able to refinance into a lower-interest personal loan. Those rates have also been increasing recently, but at an average of 10%, Schulz says they’re still well below what you currently have on your credit card.

Subscribe to CNBC on YouTube.

Comments are closed.