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Monday, October 1, 2012

A Tool to Help Save Interest on Credit Card Debt


We all know it's best not to carry a balance on your credit card. But let's say you encountered some unexpected expenses and ran up some debt. Web site CardHub.com has introduced some new calculators to help you decide the best option for paying down existing-or expected-credit card debt.

The “credit card payoff calculator” lets you enter the amount of debt you aim to pay off; the card's regular interest rate along with any introductory rate that applies; and the length of time over which you would like to pay off the debt. The calculator then tells you how much you'll need to pay each month to reach your goal and how much you'll pay in interest.

For instance, say you have $6,700 you'd like to pay off over two years, on a card with a 12.95 percent regular interest rate and an introductory rate of zero percent for six months. The calculator says you'll need to pay $301 a month to pay off the debt, and you'll pay $520 i n interest. But if you up the monthly payment to $346, you'll pay off the debt in 21 months and save $121 in interest, the tool explains.

The tool also suggests other credit cards that might have more favorable terms than the one you're currently using. Using the same example above, the site suggests other cards from banks including Chase, Citi,and BB&T that would save you money in interest. You can apply for the cards - all of which go only to borrowers with good to excellent credit - online. (CardHub earns a fee if an application initiated on the site is approved, said Odysseas Papadimitriou, CardHub's chief executive.)

Mr. Papadimitriou notes that if you expect to apply for significant credit in the near future-say, for a mortgage-you might not want to apply for a new credit card just to save on interest. That's because recent credti activity can hurt your credit score. But otherwise, it might make sense to seek the best deal you can get and pay off your debt in the most cost-effective way, he advises.

The tool also works if you know you're going to incur some debt and want to evaluate the best way to pay it off. Two other versions of the tool let you compare different credit cards, and another takes into account any balance-transfer fees you might pay.

Would you apply for a new card with better terms to pay down a balance?