Credit cards can be an excellent tool for earning rewards, but there’s a big downside to using them. The interest rate you’ll pay tends to be very high.
If you never carry a balance, this shouldn’t be a problem. You can reap the rewards that credit cards provide without worrying about wasting a fortune on interest charges.
Unfortunately, while paying your balance in full each month is always the best course of action, this isn’t possible for everyone. If you’ve ever found yourself with a lot of credit card debt, it can be frustrating to see so much of your monthly payment go toward interest charges. And the high rate makes it difficult for you to make progress in paying down that debt quickly. The good news is that you aren’t necessarily stuck forever paying off your debt. Here are two options that may help you when dealing with debt.
- A Balance Transfer
Balance transfers can be a great way to reduce the interest rate on your credit card debt if you can qualify. A balance transfer is an offer from a credit card company. If you agree to transfer your debt to their card, they’ll give you a special promotional rate on the transferred amount. Usually, balance transfer offers come with a rate of 0% — but it only lasts for a limited time, such as 12 or 15 months. If you qualify for a balance transfer card, that means you might be able to reduce your interest rate down to 0%. You will often have to pay an upfront fee to transfer your balance, though. This fee is usually around 3% to 4% but will likely be a lot less than the amount of interest you would end up paying if you didn’t transfer your debt. The big downside to this approach is that you’ll be right back to a higher credit card interest rate if you can’t pay off the transferred balance before the promotional rate expires. A balance transfer may still be a good option, though, because it gives you time to save money on interest and pay down your principal balance each month. Did you know, UHFCU has a LOW, 8.50% APR interest with NO balance transfer fee? For more information, check out uhfcu.com/visa-credit-card.
- A Personal Loan
A personal loan is another way to reduce your credit card’s interest rate. Personal loan rates are often well below the rate on credit cards as long as you’re a reasonably well-qualified borrower. You can apply for a personal loan, and if you get an excellent rate, you can take out the loan and use the proceeds from it to pay off your credit card. Unlike a balance transfer, a personal loan isn’t going to give you a rate of 0%. But you’ll have a predetermined payment schedule, i.e., one to three years. Your rate, monthly payment, and total interest costs shouldn’t change over time with a fixed-rate loan. If you want to know precisely what you’ll pay each month to be debt-free and when you’ll be done paying it off, a personal loan could be a better option.
Ultimately, both a personal loan and a balance transfer could work to make debt payoff easier by reducing your interest rate. It’s just a matter of deciding which option is right for you. And to do that, you’ll need to see what interest rates you qualify for and determine your timeline for paying your balance off. Think this applies to you? Click here to see our current Personal Loan rates.
- A Balance Transfer