How one woman shaved $3k off her debt in 30 minutes

It sounds like a cheap sales pitch, but it’s very much possible to save thousands of dollars on your credit debt in very little time. We introduce you to the power of the balance transfer.

What is a Balance Transfer?

A balance transfer is a bonus offer for people with credit card debt to move it from Bank A to Bank B. Balance transfers do come with fees (typically 3 percent or 4 percent), but if you have a significant amount of credit debt, they can be the single best tool to help you become debt free and avoid crazy interest charges over time.

In 30 minutes, the MagnifyMoney team helped a woman cut the cost of interest on her $12,000 debt by $3,128 over the next two years.

Here’s how:

We met a young woman we’ll call Anna at a financial seminar we hosted in Chattanooga, Tenn. Anna, who requested not to be named for this article, is a former teacher who lost her job because of school district cost-cutting and spent a year unemployed.

When she finally found a job, it paid 20 percent less than her previous one.

Anna blew through her emergency fund while living without a paycheck and ended up with $12,000 worth of credit card debt and a lower-paying job. She accrued all of her debt with Discover, which was charging her a whopping 21 percent interest rate. Anna paid her $235 on time, every month. About $210 of that amount went to interest alone.

If she continued to pay $235 per month, it would take her almost 11 years to pay back the debt. And she would have paid back a total of $30,352 — an additional $18,000 just in interest payments alone.

Anna asked Discover if it would reduce the interest rate, which some companies are willing to do for customers with a good credit history. The firm said no, despite her 770 FICO score.

We took Anna to the balance transfer tool. She entered her information (debt, interest rate, monthly payment), and three money-saving options appeared at the top.

At the time of our visit, PenFed offered a 4.99 percent interest rate on balance transfers for four years, with no fee (although it costs $20 to join the credit union).

Both Santander and Barclaycard offered 24 months at 0 percent, with a 4 percent fee.

When all was said and done, Anna was able to refinance $8,100 of her $12,000 debt through three balance transfer offers. In all, she paid roughly $300 in balance transfer fees. But she will easily save more than $3,128 in interest charges over the next two years.

Balance transfer offers regularly change. You should shop online to find the most current offers.

Anna was approved for these offers because her credit score is above 700. If your score is below 700, it will be more difficult to get approved for most balance transfers. You should work to improve your score. If necessary, ask for help from friends and family or consider a personal loan in the interim.

What Next?

Once you are approved, complete the balance transfers as soon as you receive the credit cards. With most credit card companies, you will lose the 0 percent interest rate if you wait longer than 60 days to do the transfer. Most important, continue to pay your bills on time every month. During the 0 percent promotional period, you should do everything you can to pay off the debt. 

MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.


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