How Much Money Can a Balance Transfer Credit Card Really Save You?

If you have credit card debt that you're trying to pay off, what's the best plan of attack? Should you simply pay as much as possible until the debt is gone, or should you use a balance transfer credit card to save money on interest and give yourself a specific timeframe to pay it off?

Unfortunately, there's not a perfect answer. But in some cases, you can save a lot of money by using a balance transfer credit card. Here's how much a balance transfer credit card could potentially save you, and a few guidelines to help you decide.

Balance transfer credit cards are still available

Consumer interest rates have increased sharply in recent years. This is especially true of credit cards, as their interest rates are directly tied to the benchmark interest rates set by the Federal Reserve. According to data from LendingTree, the average credit card interest rate in the U.S. is nearly 25%.

However, it might surprise you to learn that credit card issuers offering 0% intro APR balance transfers are just as abundant as ever. You can see some of the top balance transfer offers on our radar.

How much could you save?

By using a 0% intro APR balance transfer, you're guaranteeing that for the entire introductory period, 100% of the money you send your credit card company will be used to reduce the principal.

It's worth noting that transferring a balance isn't free. These cards typically have a balance transfer fee of 3% to 5%. So if you transfer a $10,000 balance with a 3% fee, you'll owe $10,300.

Let's take a look at the math here. As an example, we'll say that you owe $10,000 across various credit cards at an average APY of 25%. You want to pay your balance off over the next 18 months, and there are two ways you can do it.

First, you can make monthly payments of $671 per month on your existing credit cards. This, according to a financial calculator (there are some excellent credit card payoff calculators online), will eliminate the entire balance after 18 months. You'll end up paying $2,094 in interest along the way.

Second, you can get a credit card with a 0% intro APR on balance transfers for 18 months or more. If the card has a 3% balance transfer fee, you'll owe $10,300 after the transfer is complete. Dividing this by 18 months shows that you'll need to pay about $572 per month to get rid of your balance. You won't pay any interest this way, but there is still the $300 fee to consider. However, this option will save you $1,794 versus simply paying down your existing credit cards over 18 months.

Should you use a balance transfer credit card?

The short answer is that if the cost of repaying your credit card debt is likely to be more than the 3% to 5% balance transfer fee, using an 0% intro APR balance transfer offer could save you money. But it's important to mention that it isn't right for every situation.

Let's say you have credit card debt at a 24% APR and plan to aggressively pay it off within the next two months. In this case, the interest you would save from a balance transfer is unlikely to make paying the fee worth it.

On the other hand, using a balance transfer credit card offer can be a great tool to help you pay off costly credit card debt and take your time while doing it. As we've seen, the savings can be in the hundreds or even thousands of dollars, so if you want to pay off your credit card debt in the most economical way possible, a balance transfer credit card could be a smart move.