May 15, 2019
Just how difficult can it be to pay off credit card debt? Researchers using US Census Bureau and Federal Reserve data answered just that with a few revealing figures:
- The average American household debt is $5,700.
- The average for households that carry a monthly balance is almost double that at $9,333.
- For households with the lowest net worth, it’s even worse with an average credit card debt of $10,308.
If you're battling debt, strategic balance transfers to a low-interest credit card may be the key to bringing your outstanding balance to zero — for good.
How Your APR Affects Credit Card Debt
Credit card companies provide a valuable service. Their card account gives you buying power in their name. In return, you agree to pay them back.
- If you pay your balance in full at the end of each billing cycle, you use their services for free.
- When your expenditures exceed your cash flow, and you pay only a portion of what you owe, the credit card issuer charges a fee. That fee is called the APR—annual percentage rate—and it’s applied each billing cycle. It’s how credit card companies make their money.
Credit card companies determine what APR they’ll charge using a variety of factors — your credit score, their promotional rates, the supply and demand for credit, and the going rate referenced to the Federal Reserve.
What’s important to realize is that some credit cards carry variable APRs, so the interest rate can change. In addition, many cards come with an introductory rate that applies to a specific period of time. After that, a new, higher APR will apply. Rates can also rise if you’re late with a payment or miss one.
On every credit card statement, the APR for your card is listed. You need to know what that percentage is. Once you know what that number is, you can look for a credit card with a lower rate.
Transferring Your Balance to a Better Card
Balance transfers let you move all or a portion of your debt on one credit card to another — ideally, one with a much lower interest rate. With a better APR, more of each monthly payment goes toward the debt that you owe and less into the financial institution’s pocket.
Interest Rates Matter. To demonstrate just how much of a difference a few percentage points can make in paying off credit card debt, we worked up a few figures. If you were to try to pay off a debt of $7,500 with only minimum payments calculated at 4 percent of the balance, your initial payment would start at about $300:
- With an APR of 26 percent, you would make 198 months of minimum payments. That’s over 16 years. At the end, you would have paid an additional $8,600 in interest alone for a total of about $16,000.
- With an APR of 18 percent, you would make 149 months of minimum payments. That’s still over 12 years. At the end, you would have paid an additional $4,300 or so in interest for a total of about $11,800.
- With an APR of 16 percent, you would make 141 months of minimum payments. That ten-percentage point difference has eliminated more than four years of payments. At the end, you would have paid an additional $3,600 for a total of about $11,100.
We’re going to say it again: Interest Rates Really Matter. To demonstrate what happens if you take that initial minimum payment and make it a fixed payment of $300, we’ve prepared a few more figures:
- With an APR of 26 percent, you could pay off the debt in 37 months, paying $3,419 in interest.
- With an APR of 18 percent, you could pay off the debt in 32 months, paying $1,970 in interest.
- With an APR of 16 percent, you could pay off the debt in 31 months, paying $1,684 in interest.
Now, imagine what you could accomplish with no interest at all.
How Easy Is a Balance Transfer With La Capitol?
Really, really ridiculously easy. All you have to do is apply and qualify for a new credit account and use it to pay off the old, carried-over debt. We offer two different cards — Prime Plus Visa and Rewards Visa — that both come with serious perks:
- Zero interest—yes, zero—on balance transfers for 12 months.* Just make the transfer within 90 days of opening the account, and you can start eliminating debt with your entire payment applied to your principal for a year.
- Zero balance transfer fees for your qualifying balance transfer.* Banks often charge a transfer fee, usually a percentage of the transfer amount.
- A low 1.99-percent APR on new purchases made within the first 90 days for 12 months.*
- No annual fee.
- No over-the-limit fee.
Prime Plus Visa is perfect for paying off something like a balance transfer because we reward card holders with the lowest interest rates possible. Meanwhile, Rewards Visa is designed for card holders who want to accrue rewards points for cyclical spending by paying off monthly balances.
Break Free With La Capitol
When you’re here, you’re a member — not a profit margin. If crushing your credit card debt is on the agenda this year, we are in your corner and ready to help. Check out our low-interest rate credit card, and see if La Capitol is right for you.
*APR = Annual Percentage Rate. Our Prime Plus Visa has the lowest rate of any credit card we offer. The introductory APR on purchases is 1.99% for twelve months for purchases made in the first 90 days after account opening. The introductory APR on balance transfers is 0.00% for twelve months for balance transfers made in the first 90 days after account opening. Purchases and balance transfers made after the introductory rate periods will be charged at the non-introductory rate. The introductory rate does not apply to cash advances. The introductory rate will end twelve months from account opening. Your rate for purchases, balance transfers and unpaid balances after the introductory period will be adjusted to the non-introductory rates, based on your creditworthiness. Existing La Capitol credit card balances or loan accounts are excluded from this 0.00% balance transfer offer. Membership eligibility required. Visit lacapfcu.org for full membership eligibility requirements.This offer is subject to change.