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If you accumulate a large balance on a high-interest credit card, rather than paying interest every month to slowly chip away at your debt, a balance transfer may be a good option for paying it off at a lower interest rate. Many credit card companies offer products with very low or even 0% introductory rates on balance transfers based on your credit score. This introductory rate only lasts a predetermined period of time, usually six to 18 months before the rate increases. A fee is often associated with a transfer and is typically 3% of the balance.

Most cards also have a balance limit that applies to transfers. If you are able to find a new credit card with a very low interest rate, little or no balance transfer fee, a credit limit high enough to accommodate your previous balance and an introductory period long enough to pay off the balance before the rate increases, then a balance transfer is a good idea for paying off your debt.

For example, say you have a $3,000 balance on a credit card with a 15% interest rate. If you pay $250 per month, it would take 14 months to pay off the balance. However, if you transferred that balance to a 0% interest card with a 3% transfer fee while making the same payments, it would take only 13 months to pay off (including the $90 transfer fee), saving you $360. This example is the ideal situation for a balance transfer as you are able to pay off the principal balance faster versus most of your payment going toward interest.

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