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3 Ways to Reduce Credit Card Interest Payments

Consider lower balance cards, debt consolidation and installment payments to eliminate debt

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Americans have accumulated $250 billion in credit card debt over the past two years, surpassing $1 trillion in total credit debt held by consumers. Getting into debt can cause a lot of stress. Take comfort that your financial freedom is within your reach.

Online tools, tips and calculators can help you figure your best way out of debt. We spoke with two financial experts to help us navigate the best path. They shared these options for reducing the total out-of-pocket costs.

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1. Balance transfers

“If you find yourself overwhelmed by credit card debt, applying for a balance transfer credit card is a great idea,” said WalletHub analyst Jill Gonzalez.

A balance transfer moves the entirety of a debt from one card to a lower- or no-interest card. These lower- or no-interest offers are usually for a limited time, so when you make the move, you want to be able to pay down the balance before the increased interest rate kicks in. Usually, there’s a fee, such as 5 percent of the total transfer, so if you owe $5,000, you’re going to pay $250 for the lower rate. You can determine whether that’s the right move based on what you’re able to pay per month and what the interest rate is.

Using a balance transfer calculator from, you can determine whether a transfer option is right for you by finding the savings break point. For example, if you have a card with a 20.99 percent interest rate and you can pay off a $1,000 balance with five $228 monthly installments, interest will cost $49.99. That’s less than the 5 percent balance transfer fee of $50 on $1,000.

But that scenario changes if you can’t afford $228 per month or if your interest rate is lower than 20.99 percent.

Balance transfers are optimal when your budget is limited to smaller monthly payments.

“If you can manage to pay off a balance in three months or sooner, or you can’t qualify for a good 0 percent APR (annual percentage rate) offer, paying off your debt as quickly as possible might be the best, most cost-effective option,” according to NerdWallet.

Some current balance transfer offers include:

  • Citi Simplicity Card, which offers 0 percent for 21 months from date of transfer and charges a 3 percent transfer fee.
  • Discover it Balance Transfer, which offers 0 percent for 15 months and a 3 percent transfer fee until Sept. 10 (and 5 percent after that).
  • Citi Double Cash Card, which offers 0 percent for 18 months and a 3 percent transfer fee for four months (and 5 percent after that).

Will balance transfers impact your credit score? Gonzalez said yes, but the effect is temporary, lasting probably not more than a year.

“In the long run, the benefits will outweigh the negatives if you manage to repay your debt during the card’s 0 percent interest period,” she said.

2. Debt consolidation

For those with fair or average credit who won’t qualify for a balance transfer fund, another option is debt consolidation. Lenders offer debt consolidation loans in which you can put all your debts into one loan and pay it off with fixed monthly fees over a specific amount of time.

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“The personal loan will usually have a higher interest rate, such as 8-12 percent, but it will be fixed for the entire repayment period,” said Tyler Wright at Defining Wealth. “This is beneficial because the lendee would not be able to ‘run up’ the loan like they would a credit card.”

Wright added that reducing the amount of credit in use by transferring the debt to a loan could improve your score — as long as you stop spending on your cards.

The debt consolidation loan will require a hard credit report inquiry that will dip your credit score, Gonzalez noted.

“On the other hand, consolidating your debt with a loan could lead to a drop in your credit utilization ratio, which would increase your score,” she said.

Visit NerdWallet for a list of debt consolidation loans.

3. Buy now, pay later

In a buy now, pay later plan, you can set up fixed monthly payments with sellers or through your credit card and not pay interest on a purchase. Two financial advantages of this are that your money can earn interest sitting in your bank account and you can pay down debt while you benefit from the products you want sooner rather than later. The incentive for the merchant is increased sales while the consumer benefits from what is essentially an interest-free loan.

However, buy now, pay later plans drop interest rates in favor of fees. Some credit cards offer monthly installments that can extend for six to 12 months. Other services let you pay four installments every two weeks. To save money you’ll need to compare interest rates against the installment payment fees to make sure you’re not actually paying more in fees than you would in interest.

NerdWallet has reviewed seven of the best apps to help you determine your savings options: Affirm, Afterpay, Apple Pay Later, Klarna, PayPal, Sezzle and Zip.

Share your experience: What do you do to avoid or eliminate debt?

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