What is a balance transfer credit card?
A balance transfer credit card allows you to take all of your remaining debt from one or several different accounts and combine it onto one credit card that hopefully has a lower interest than what you’re already paying. It’s just a way to consolidate debt to make it easier to manage.
How do they work?
You need to begin with working out which debts you want to combine, which ones your credit card will let you combine, and decide which ones are really worth it. Keep in mind that you probably can only combine an amount equal or less than your credit card’s limit. Then complete the process with your chosen bank/credit card company. Your two creditors will then work out the details over the next few days or weeks.
Things to have handy through the process:
- The account number(s) of the balance you want to transfer
- The balance on each account
- Your current interest rate
You must continue paying your bills until you are sure that the process is complete, and your balance has been transferred.
Once it’s all set up, you can just make the singe payment every month and start reaping the benefits.
If you have high interest rates, this is a cost-efficient way to pay off your debts. If you can find a creditor to give you a lower interest rate than the ones you’re paying now, you’ll be able to pay off your debts much more quickly. Plus, you won’t have to worry about paying so many different bills that you’re more likely to forget about. Being able to just do a single payment once a month for all of your credit cards provides much more ease. You might even be able to find one with a sign on fee, reducing your debt owed even more. Strategize among all your options to figure out which combination will decrease what you owe the most.
If you have more credit line left on your card after combining your debt, you may start using the card for more purchases, causing you to increase the debt you have.
You’re also limited by your credit score when you’re trying to be approved for this. Good credit is usually required to get this done.
Additionally, sometimes the transfer will require a balance transfer fee. This means you’re really going to have to do your math before combining your debt this way. These numbers are important to calculate:
- How long it would reasonably take you to pay off the debt without consolidating
- How much more you will pay in interest to pay off your existing debt in this amount of time
- How much you would like to consolidate
- How much a balance transfer fee would cost you for that amount of debt
- Whether or not that fee is cheaper than the interest you would be paying
Maximizing the benefits
The first thing you should do after combining your debt to this card is to create your Get Out of Debt plan. Figure out what fees you’ll end up with and when, how soon you want to pay it off, and how much you want to pay a month. Then follow the plan (no need to not be flexible when circumstances change), and you’ll hopefully manage to come out of debt paying much less in then end.
Be absolutely sure that you pay your debts on time every month. It’s just going to make it harder on you if you get behind on payments and receive late fees. Staying on schedule is the best way to ensure you don’t get extra debt on top of your debt and that you will only be improving your credit.
Also, try your best not to use the credit card to make new purchases. If you want to pay it off as quickly as possible with the lowest fees, you don’t want to add more debt with interest on top of that.
If there’s a 0% interest fee or some other introductory offer for a period of time, you really want to try and pay off your balance before the end of that period. This will allow you to get the most out of what this new credit card can offer you.
Finally, if you’re wanting to consolidate debts other than just credit card balances, look for a card that can do that for you.
Choosing the best card for your needs
These are the most important terms to look at when choosing a card:
- How much you’ll be able to transfer to the credit card
- The balance transfer fee
- If they have an introductory bonus and how much it is/how long it lasts
- If you have any incentives for purchases and not just balance transfers
Once you have determined those for several cards, start plugging in that math you did before and see which card is going to be most advantageous for your process getting out of debt.
If you want to transfer over a lot of your debt, look for cards that have larger credit lines to be able to handle that. Pay attention to those balance transfer fees. They’re typically going to go for around 3-5%. Also, try to avoid cards with annual fees. Basically, you’re looking for the card that is going to decrease the additional fees you’ll pay on your debt, not increase it.
Is a balance transfer card right for me?
Overall, if you’re up for figuring out a strategy and sticking to it, this can be a much more convenient way to pay off your debts. This is especially helpful if you find you’re not able to make a dent in your payments because most of your payments are going to acquired interest. At the very least, you may be able to come closer to the surface of your debt, allowing you to work on moving forward rather than backwards. If you’re not ready to get serious, consider another type of credit card that will be saving you money, so you’re not further increasing your debt. However, if you’re willing to specifically focus on paying off your balance, this card is going to be perfect for you.
What is a Balance Transfer Credit Card and How Does it Work?
Balance transfer credit cards a type of credit card that offers a meager interest rate – sometimes even 0%. These incredibly low-interest rates are designed to entice people who have existing credit card debt to transfer their balances from one credit card to another. These offers tend to only available for a specific window of time, be it ten months, one year, 180 days..etc…They are also designed to entice new customers who will hopefully keep the card, even once the promotional time frame ends.
By getting a balance transfer card, you can easily save thousands of dollars in interest that your previous card would have charged you – provided you pay the debt off entirely and on time with your new card. It is crucial to note that if you fail to do this, once the 0% offer ends, the interest will spike and can go up to more than 25% depending on your credit score and payment history.
How Exactly do Balance Transfer Credit Cards Work?
To put it simply, balance transfer cards are credit cards that allow you to move your debt from one credit card to another — essentially allowing you to pay off one credit card with another. Typically, a person will transfer their balance to a credit card with a lower and more manageable interest rate, thus allowing them to save some money on their monthly payments, or potentially pay off the entire balance in a more timely manner. For example, if you find yourself paying 12 percent interest on a $3,000 debt, you will have a $560 payment for the next six months in order to pay off the balance. However, if you transfer that $3,000 balance to another credit card, one that does not charge any interest for the first six months, your payments will be lowered to $500.
What to Consider Before Getting a Balance Transfer Credit Card
When used correctly and responsibly, a balance transfer credit card is a financial tool that can really save you a lot of money, and can actually help you get out of consumer debt. However, before you choose to get one and transfer your consumer debt from one card to another, you really need to consider a few things, including the applicable balance transfer fees, the interest rate once the promotional period is over, and the interest rates for new purchases that are made on the card.Credit card companies generally charge a balance transfer fee. This fee can range anywhere from 1.00-5.00% of the amount that you transfer. For example, if you transfer a $5,000 balance and there is a 3% transfer fee, you will be charged $150 for the transfer. Depending on what the interest rate of the new credit card is, the balance transfer might not actually be worth it.
It is essential to understand that interest rates can also end up costing you a lot of money in the long term. If you don’t get around to paying off your entire debt by the end of the promotional period, or if you have missed any of your monthly payments during that period the standard interest rate will be applied.Perhaps the final thing that has to be considered prior to signing up for a balance transfer credit card, and transferring an existing balance from a higher interest credit card is whether you will use it for more than that. If you use your balance transfer credit card for additional new purchases prior to paying it off you’ll be charged the regular interest rate – this is generally 19.99% minimum. Additionally, any payments that you make will be applied to the remaining amount of the balance transfer first. This means that you will continue to gain interest on any purchases that you make on the card after the balance transfer takes place until the amount you initially transferred is completely paid off.
How to Properly Pick a Balance Transfer Card, and Choose the Right One for You?
When comparing balance transfer cards, it is easy to look at the lengths of the introductory periods, and want to go with the longest one. While there is some validity to that option, there are other things that you ought to keep in mind. One of them is the balance transfer fee. Now, the majority of balance transfer cards charge a fee between 3% to 5% to transfer a balance. This can quickly add over $100 to your balance if you have a large balance to transfer.
That said, there are a few cards that do not charge a fee for your initial balance transfer – as long as it is done within 60 days of your opening your account. Another thing to consider is which is a better way to go? A card with a long introductory period or a no-fee balance transfer offer? In most situations, the no-fee card wins out. However, it is crucial that you research and decide what is right for you. Here are a few tips to help you decide.
● Figure Out Your Ideal Payment Terms
How much can you afford to actually pay each month? While it is a good idea to take the steps to pay down your debt in the quickest manner possible, you should come up with a manageable amount.
● Calculate fees and interest
Once you understand the size of the balance transfer, as well as the installment amount, you will need to calculate the interest and the fees for each card you are considering. Essentially, if you cannot pay off the entire debt by the end of the introductory period, you have to calculate how much of a balance remains for each card.
● Compare fees and interest on each card
By using the same installment payment and the balance transfer amount calculate the interest and the fees for each card you are comparing and then compare the amounts side by side.
Benefits of a Balance Transfer Card
- If you are Planning a Renovation
As opposed to paying interest on renovation expenses, customers who choose to use a balance transfer card that has a 0% interest time period are provided with a period of time that they can pay off their renovation without having to worry about paying any interest.
- If You are Moving
The cost of moving across the country or even across the state, can be an extremely costly endeavor. However, a balance transfer card with a 0% intro APR can smooth out those bumps.
Drawbacks of a Balance Transfer Card
- If You Don’t Have a Stable Budget
If you have not been able to set a clear and stable budget, a balance transfer credit card may not be a good choice until you get a budget in place. If you don’t have a set budget you are more likely to break the bank. Now, you might ask what your budget has to do with whether or not a balance transfer card is a good option – but think about it – if you get a balance transfer card but are still spending as freely as you were before, you are not overly likely to be putting money on that card to pay off the debt – leaving you vulnerable to having to pay the standard interest rate after the low or zero APR period ends. Additionally, once you have cleared one credit card (by transferring the balance to your balance transfer card) you have the flexibility to use that original credit card again – thereby accruing more debt.
- If You Don’t Have a Plan to Pay Off the Debt
Yes, balance transfer cards can save you a lot of money. They are a great option if used correctly. That said, if you cannot figure out how to pay off your debt by the time the low or 0% APR offer ends, you may have to look for a credit card with either a longer low interest window, or avoid completing the balance transfer in order to avoid accruing debt at an even higher interest rate.
How Exactly are Balance Transfers Completed?
If you are considering getting a balance transfer card, it is natural to wonder how much work goes into transferring the existing balance from one card to another. While it might seem intimidating at first, the process is actually quite simple on the part of the cardholder.
- The very first thing that you have to do is actually apply for a balance transfer card. Prior to choosing a card it is vital that you compare the different cards that are out there as they all have their own details. Once you have taken the time to do your research and pick a card, it is time to apply for it.
- Once you have chosen and been approved for your balance transfer card it is important that you gather all of the necessary information regarding the balance you want to transfer. In other words, gather the account details, such as the card balance and the account number, for the credit card that has the existing debt. This card is referred to as the “transfer from” card.
- After you receive your balance transfer card, you will have to call customer service and let them know that you want to transfer a balance onto your new credit card. At this point you will have to provide them with the required information that they will need in order to reach out to the old card company and then move the requested amount to your new credit card. There are a lot of credit cards that will also allow you to make balance transfers through your online account. However, many professionals advise that you wait until you receive the physical card in order to initiate a proper balance transfer.
It is really important that customers be aware of the fact that it can take up to six weeks for credit card balances to transfer. Because of this, many financial professionals recommend that you pay the minimum monthly payment on your old card until the transfer closes, thus allowing you to avoid late fees and additional penalties.
Balance transfer credit cards are one of the most useful financial resources out there – when used correctly. Unlike other credit cards, they can actually provide customers with a way to save money while paying off debt. While the details of each card varies, there are a multitude of potential options out there for customers to take advantage of. In short, if you are looking to pay off your debt, and are looking for a leg up in the process, consider a balance transfer card, but be sure to make a plan to accomplish your goal before transferring any balance over. Good luck!