Should You Do a Balance Transfer in Early 2023?

It could pay off if you're sitting on holiday debt.

The holidays are an expensive time of the year to begin with. But this year, a lot of people incurred extra costs due to inflation. And if you're sitting on a pile of holiday debt right now, you're not alone.

If you owe money on different credit cards, you could tackle those balances individually until they're paid off in order of highest interest rate to lowest interest rate. Or, you could do a balance transfer in January and move them over to a single credit card. Here's why that may -- or may not -- be a good choice.

The upside of doing a balance transfer

When you do a balance transfer, you trade in multiple credit card payments a month for a single payment. That could make your bills far more manageable and help you avoid a scenario where you're late with payments not due to a lack of money, but due to forgetfulness.

Also, many balance transfer credit cards come with a 0% introductory interest rate. And that's important, because what it allows you to do is avoid incurring extra interest charges while you work at whittling your debt down.

Of course, if you do a balance transfer, you'll want to make a point not to add to your balance. But all told, it could be a source of savings and a means of making your life easier.

The downside of doing a balance transfer

A balance transfer offer might seem appealing. But if you don't have a very good credit score, you may not qualify for one.

Also, there are fees associated with moving your different credit card balances onto a new card. You'll need to see what those entail before doing a balance transfer. Often, they'll range from 3% to 5% of the sum you're transferring over. If you're looking at the higher end of that range, your costs could add up.

Finally, while some balance transfer offers give you access to a 0% introductory rate on your new card, some don't. So you may not manage to shave down your interest rate all that much. And also, those 0% interest rate periods are limited. If you don't pay off your balance by the time yours ends, you could get stuck with a high interest rate on your debt.

Is a balance transfer right for you?

If you're closing out 2023 with credit card debt, whether it's from the holidays or from something else, then it could pay to look at a balance transfer. But that's not your only option for consolidating debt. Another option to research is a personal loan.

With a personal loan, you'll face some closing costs, but those might be less expensive than a balance transfer fee. And if you're not getting a 0% introductory rate on a new credit card, you may be better off with a personal loan, since the rate on that loan might be more reasonable than that of another credit card.

All told, doing a balance transfer could help you pay off your debt more quickly, so it's an option worth considering. But it may not be the only one you should contemplate in January.