Transferring a balance from a high-interest credit card to one with a lower interest rate can provide relief from hefty monthly payments. But it’s important to know how to transfer money from credit card to bank account and then have a plan to manage your finances responsibly after the transfer.
Getting Started
Swiping a credit card online to make purchases is easy and convenient. But before you know it, your outstanding balance grows as interest charges accumulate. If you carry a large balance on a card with a high-interest rate, your minimum payments mostly go towards interest fees rather than the principal amount.
One way to reduce the interest burden is to transfer the balance to a card with a lower interest rate. This can provide some temporary financial relief.
However, having a debt repayment strategy is critical so you don’t fall back into the debt trap. Here are some tips on managing your finances wisely after making a credit card balance transfer.
Review Your Budget
The first step is to review your monthly household budget. Ensure your necessary living expenses, like rent, utilities, groceries, etc. are covered.
Then look for areas where you may overspend on discretionary items like dining out, entertainment, shopping, etc. Try to cut back on non-essential expenses so you can allocate more funds to pay off your credit card debt faster.
Building a realistic budget that aligns with your income and financial goals is key to successfully managing your finances after a balance transfer. Track your spending diligently for a month to identify waste and create a balanced budget. Use budgeting tools and spreadsheets to stay organised.
Pay More Than the Minimum Due
When you transfer a balance to a new credit card, you typically get a lower interest rate for a limited introductory period, such as 0% for 12-18 months. Make the most of this period to pay off as much as you can faster. Paying just the minimum due will not dent your balance by the end of the intro period.
Ideally, you should aim to pay 3-4 times the minimum amount due so you can pay off most of the balance before the regular APR kicks in. Paying extra also reduces the interest fees.
Automate payments for at least the minimum amount so you never miss a payment and impact your credit score. But try to pay as much over that amount as your budget allows.
Avoid New Credit Card Charges
Using your new credit card for purchases might be tempting since it has available credit. Avoid this urge, as it will directly detract from the balance you are trying to pay off. Use a debit card or cash for your spending needs so you don’t accumulate new debt on the card you are trying to pay off.
Also, avoid taking any new cash advances on the card, as it will start accruing interest immediately at a very high rate. The key is not adding to the existing balance and diverting all extra funds to pay off the transferred balance during the intro period.
Consolidate Other Debts
If you have outstanding balances on multiple credit cards, consider doing a credit card balance transfer to consolidate them into one place. Choose the card with the lowest promotional APR for the longest duration. This simplifies managing just one monthly payment at the lowest interest cost.
You can also explore balance transfer options like moving credit card debt into a lower-interest personal loan.
Run the numbers to see if it makes sense for your situation. The goal is to reduce the total interest costs and period for repaying all debts. Consolidating through balance transfer is an efficient strategy.
Build an Emergency Fund
As you work on paying off your credit card debt, also start building a rainy day fund if you don’t already have one. Aim to set aside at least 3-6 months’ worth of living expenses in a savings account as a financial cushion for unexpected expenses. This emergency fund prevents you from having to use the credit card again for surprise bills or during financial hardship.
Even if you can only afford to contribute a small amount each month to savings, make it a habit. Having an emergency savings buffer helps you stick to your credit card repayment plan without being forced to accumulate more debt.
Explore Debt Management Programs
Enrolling in a formal debt management program could benefit some individuals with sizeable credit card debt. Reputable non-profit credit counselling agencies offer these programs to help create a personalised debt repayment plan for your budget.
They negotiate with creditors to lower interest rates or get fees waived off. You make one monthly payment to the agency, and they disburse to the creditors. The programs also provide financial education and guidance. Research different agencies to find one that best suits your needs.
Final Thoughts
The key takeaway is that transferring money from a credit card with high interest to one with lower interest provides only temporary relief. You need disciplined financial and debt management for months and years after that to fully repay the accumulated balance.
Stick to your budget, make more than minimum payments, avoid new charges, consolidate other debts, and build emergency savings to successfully get out of credit card debt. Also, seek help from credit counselling agencies if required. Stay focused on your long-term aim of becoming debt-free.