Credit cards that offer strong balance transfer offers can help cardholders with high interest rates pay down their debt faster and more affordably. The concept is simple: you transfer your existing credit card debt to a new card with a lower interest rate, with the intention of repaying your debt quicker.
How does a balance transfer work, and how can it save you money? Is a balance transfer credit card right for you, and what is the best way to use it to eliminate credit card debt? Let’s find out. Remember: for more tips on how to improve the quality of your life, visit www.credithealing.org.
How Credit Card Balance Transfers Work
The credit card balance transfer occurs when you transfer all or part of an existing credit card balance to another credit card. New customers can get special promotional interest rates as low as 0% on balance transfers with some credit cards.
As long as the promotional interest rate is in effect, you will pay it on any balance transfers you make to your new card. With a card offering 0% APR on balance transfers for twelve months, you can pay off your transfer, interest-free, for a full year.
By transferring your credit card balance to a card with a lower APR, you can pay off your debt faster and reduce the amount of interest you pay.
To complete the transaction, you simply need to open a card with a low-interest balance transfer offer and transfer your balance to the new card.
Choosing the Right Balance Transfer Card
Your credit score and credit report will determine what credit cards you are eligible for. The best cards are reserved for individuals with good or excellent credit. However, if you can, look for cards that offer the following:
- 0% introductory annual percentage rate: Get a card with an introductory 0% balance transfer period – for a limited time, you will be able to transfer your debt without paying interest. If you don’t qualify for a credit card with 0% APR, you may still be able to get one with a much lower intro APR, which can still save you a lot of money over time.
- Low balance transfer fees: Generally, most credit cards charge 3% to 5% of the balance transfer amount as a transfer fee, although some cards offer free transfers for a limited time. Choose a card with a low (or nonexistent) transfer fee.
- Sufficient promotional periods: It’s imperative to pay off your balance transfer within the promotional period, which can range from a few months to over a year depending on the card. If you don’t pay off your balance in time, the regular interest rate will kick in. You should choose a card that gives you enough time to pay down your balance.
- Avoid annual fees: Annual fees are automatically added to your balance, so you may want to avoid cards that charge annual fees.
Check the APR that kicks in after the 0% introductory period before applying for a card. You should look for a better option if this APR is higher than what you’re paying on your current credit card – if you don’t manage to pay off the transfer before the interest kicks in, you’ll be slapped with a higher APR.
How to Use a Balance Transfer Credit Card
As soon as your card is open, you should transfer the balance. As a result, you will have as much time as possible to take advantage of the introductory APR. Transferring your balance right away will help you avoid fees if your card offers free balance transfers for a limited time only.
Make sure you budget to pay off your balance in full before the intro period expires. By the time the regular interest kicks in, you should be making a payment that will reduce your balance transfer amount to zero.
In addition, you should avoid using the card for everyday purchases, especially if you have trouble managing your finances. Even if you have a 0% APR on purchases, you can still balloon your balance if you use your card for spending. In order to reduce your debt, you should limit or eliminate spending on the card until the balance is zero.
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