One way to help the money you're paying toward credit card debt go farther in paying down your balance sooner is to make sure you've gotten the interest rate on the debt as low as possible. One way to do that is to transfer your balance to a new card with a lower interest rate. These offers often come with promotional rates where it starts out low but then jumps up after a certain number of months. There are definitely pros and cons to this strategy, but here are a few things to consider:
How’s your credit? Depending on your credit score, you may not qualify for the best deals or even any new credit at all. To make matters worse, if your application gets turned down, that will hurt your credit score even more. Many banks and credit card companies will let you check your credit report for free once a year – be sure to check with the ones you use. Once you know your credit score, you can see what balance transfer offers you might actually qualify for before applying. (keep in mind that your bank may use their own formula and may not be exactly the same as the credit scoring system the credit card company uses)
What are the fees and how long does the balance transfer rate last? You want the interest savings to outweigh any fees you may have to pay to transfer your balance. Be aware that you may end up with a higher fee once the promotional rate ends.
Can you borrow from your 401(k)? If you can’t qualify for a new credit card or if the balance transfer rate is still higher than 4-6%, you may want to pay off your credit card debt with a 401(k) loan instead. There’s no credit check and you pay the interest back to yourself. But you should also be aware that there are potential downsides to this option as well, which could affect your ability to retire when you want to.
Do you have equity in your home? Another option is using a home equity loan or line of credit to pay off your credit card debt. If you have a good credit, you can qualify for a pretty low rate. The big downside is that you can lose your home if you default so this is not a good option if you might have trouble making payments.
Is this part of a strategy to pay down your debt? No matter which of the above options you choose, one of the biggest mistakes people make is to do a balance transfer or otherwise refinance their debt and then run the debt right back up on the old credit card. Make sure any balance transfers you do is part of a wider plan to pay down your balance faster rather than get deeper in debt.
Like with most financial questions, the answer to whether you should do a balance transfer is, “it depends.” If doing so enables you to pay off your debt faster (ideally before the interest rate adjusts), then it usually makes sense. Just make sure you are aware of all the potential downsides so you don't risk ending up with even more debt than you started with.