When debts start piling up, it's normal to look for ways to get rid of them as soon as possible. A credit card might seem like a good option, but it isn't always the best — or cheapest — solution for everyone. Before you use a credit card to pay down debt, here's what you need to know.
Why Pay Debt With a Credit Card?
You'll get more time to pay. If your account is headed for collections or a judgment, it might be a good idea to use your card. This also applies to bills like utilities that could place you in an emergency situation. Sometimes, the cost of letting your account go into collections is worse than any fees or interest you'll pay with a credit card.
You'll save money. If the fees and interest rates on your credit card are lower than the fees you're paying on your current debt, you could save hundreds of dollars by basically transferring the debt to your credit card. Further, if you can pay off the debt within a couple of months, you'll save even more.
Know the Risks
You could max out your credit card. And this will likely increase your debt-to-credit ratio. It's recommended that you keep your ratio below 30% to maintain a good credit score.
You could pay a lot in fees and interest. Make sure you're aware of the costs you'll incur when paying off your debt. You could easily end up paying much more for your debt in the long run.
SEE ALSO: 8 Best Credit Cards for College Students
Types of Debt to Pay Off With a Credit Card
Don't use a credit card to pay off all debts. For instance, a car payment or student loan might not be worth paying off with a credit card. Some debt types that are typically well-suited to this method of repayment include:
- Other credit cards
- Personal loans with high APRs
If you need to transfer a balance from one credit card to another, you can save more money if you shift to a card that offers a 0% introductory APR. Keep in mind that balance transfers often come with a fee of at least 3% of the balance you're transferring — ideally, you'll want to use a card with a 0% intro APR and no balance transfer fee.
The Top Credit Cards for Transferring a Balance
Cards offering both no interest and no transfer fee are rare. However, you do have a few options:
Barclaycard Ring MasterCard
The Barclaycard Ring MasterCard isn't as well-known as other cards, but it's still one of the best options for transferring balances. This card has no balance transfer fee, foreign transaction fee, or annual fee. You also get 0% intro APR for 15 months on purchases and balance transfers that are transferred within 45 days of the account opening.
Capital One VentureOne Rewards
Not only is Capital One VentureOne a great card for transferring a balance, it also awards 1.25 miles for each dollar you spend with the card. This card has no balance transfer fee and a 0% introductory APR, but that's only for purchases. So, although you can save money with no balance transfer fee, you'll still pay interest on any balances you transfer.
Other cards charge balance transfer fees, but provide 0% introductory APRs on balance transfers for an extended amount of time. These cards give you one to two years to pay off your debt before you're charged interest.
The Chase Slate card offers a 0% introductory APR on balance transfers and no annual fee. (Transfer your balance within the first 60 days of opening the account to avoid paying the balance transfer fee.) After that, the fee is 5% or $5 — whichever is greater. You also get a 0% intro APR on both purchases and balance transfers for 15 months, giving you over a year to pay off your debt before you're charged interest.
Though the BankAmericard credit card has a balance transfer fee of 3% or $10 — whichever is greater — it also offers a 0% intro APR for balance transfers for 15 billing cycles, as long as the transfers were made within 60 days of the account opening. Plus, you don't have to pay a fee for any balance transfers made within that 2-month block of time.
The Citi Simplicity card offers a 0% introductory APR for 21 months on balance transfers and new purchases. There is a balance transfer fee of $5 or 3% (again, whichever is greater), but with 21 months to pay off the balance, that might be worth it.
Readers, have you ever paid off debt with a credit card? What cards would you recommend using to pay off debt? Let us know in the comments below!