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Transferring your balance from one credit card to another can sometimes be a helpful way to pay off credit card debt. But you might not receive a good balance transfer offer if you don't have good to excellent credit and a high income. If it doesn't seem like a balance transfer will work out, you can try one of these three alternatives.
Why a Balance Transfer Isn't for Everyone
Balance transfer credit cards have low or 0% introductory annual percentage rate (APR) offers for new cardholders. You can move high-interest debts to the card to save on interest, and you can pay down debts faster because your entire payment will now go toward the card's principal balance. However, a balance transfer card might not be a good fit if:
- You have a low credit score. You might not get approved for a balance transfer card if you have a poor credit score. Or, you might get approved with a low credit limit, which can make the balance transfer offer less useful.
- You have a high debt-to-income ratio (DTI). Your income and debt payments can also impact your eligibility for a new credit card and your account's credit limit.
- You don't have a lot of debt. Many cards require you to pay 3% to 5% of the amount you transfer in balance transfer fees. If you have a small balance that you'll pay off soon anyway, you might wind up paying more in fees than you save in interest.
- You tend to overspend. Moving debt off of your credit cards will free up those cards' available credit. But if you use those cards and build up their balances again, you could wind up in more debt overall.
Additionally, some offers are better than others. You can compare balance transfer card offers to see which offer the lowest fees or longest promotional periods, but know that you generally can't transfer balances between cards from the same issuer.
Balance Transfer Alternatives
There are three popular alternatives if you think a balance transfer isn't the best option right now. You can also combine several strategies—maybe including a balance transfer for some of your debt—if that makes sense for your situation.
1. Personal Loan
You can take out an unsecured personal loan and use the money for almost anything, including paying down debts. These are installment loans, which means you receive the entire loan amount upfront and repay it over the repayment period. Many personal loans also have fixed interest rates, which means the periodic (often monthly) payments will stay the same over the lifetime of the loan.
A personal loan can be a good option if you want a structured approach to consolidating and paying off your debt. It also may be easier to get approved for a large personal loan than a credit card with a high credit limit. However, depending on your creditworthiness, the loan may have a high origination fee and interest rate. Personal loans also don't offer introductory interest-free periods, and you'll want to calculate whether using a personal loan will likely result in savings.
2. Debt Payoff Plan
You could also consider taking a more structured approach to paying off your credit card debt without opening any new accounts. This may be the best option if you likely won't get approved for a new card or loan, or if you're in debt due to overspending rather than covering unexpected expenses.
Two common strategies are the avalanche and snowball debt payoff methods. Start either strategy by making a list of all your debts with their balances, interest rates and payment amounts.
- The avalanche method is when you focus on paying off the debt with the highest interest rate, while making minimum payments on your other accounts. Once you pay it off, focus on the new highest-interest account. The approach can save you money by minimizing how much interest you pay.
- The snowball method is when you focus on the account with the lowest balance first. While you might pay a little more interest than you would with the avalanche method, paying off balances more quickly can be motivating and help you stay on track.
While many people use one of these popular methods, you can also try other approaches. You could even use a hybrid method if that's what will work best for you.
3. Debt Management Plan
You could try reaching out to a nonprofit credit counseling organization and get a consultation with a credit counselor—initial consultations are often free. The counselor can review your income, debts and budget and explain the pros and cons of different options.
Credit counselors can also help you set up a debt management plan (DMP). With a DMP, you pay the agency every month, and the agency distributes the money to your creditors. You'll generally pay off your credit card debts within three to five years, but you also have to agree to certain stipulations, such as refraining from using credit cards while you're enrolled in the DMP.
Agencies can also charge you fees for a DMP, but the plan is more than a hand-holding tool. The credit counselor may be able to negotiate lower interest rates or more affordable payment plans with your card issuers, which could more than offset the DMP fee. They may also get your card issuers to bring past-due accounts current, which can make paying them off easier and help your credit score.
Tips on Avoiding Debt in the Future
Paying off credit card debt is often difficult, even if you use helpful strategies or a balance transfer offer. Avoiding new debt isn't always possible, but here are a few tips to keep in mind:
- Build an emergency fund. Having savings that you can tap into during an emergency can keep you from having to take out a loan or use your credit card. You can keep an emergency fund in a high-yield savings account to earn interest in the interim.
- Track your expenses. Budgets can be great, but they can also be difficult to stick with long term. At a minimum, consider tracking your expenses so you'll have a sense of how much you spend and where your money goes. The insights also might reveal ways to save money and options for quickly cutting back when needed.
- Try to identify spending patterns. Some people spend money as a habit or coping mechanism, which can quickly lead to overspending. Identifying and changing these behaviors can be difficult, but it may also be a necessity for avoiding debt.
- Find an accountability partner. Sharing your desire to get and stay debt free with someone who has a similar goal can help you both succeed. You can look for an accountability partner among your friends or family, or turn to online communities of like-minded people.
Track and Build Good Credit
You might be focused on paying off high-interest debt right now, but sometimes taking out a loan is a smart financial move or a necessity. Having good credit can give you access to more types of accounts and better offers on your loans and credit cards. You can create a free Experian account to check your credit score and then monitor your credit report and score. When you're looking to open a new account, Experian's free comparison tool can also show you offers (including for balance transfer credit cards) based on your unique credit profile.