The average American household currently carries a balance of $5,700 in credit card debt. Where do you fit into that worrisome statistic?
Are you carrying too many credit cards with high interest rates? Are you ready to tackle your debt and gain control over your finances?
While many will turn to personal installment loans to help pay it off, balance transfer cards can help. Let’s get into what you need to know.
What Does Balance Transfer Mean?
A balance transfer simply refers to transferring your high-interest debt from one credit card to another card with lower interest.
When planned appropriately, this strategy should help you pay less in interest overall. This means you’ll pay more towards the principal payment. In the long run, this results in you squashing down your debt faster!
Balance Transfer Fees
Most balance transfers require a transfer fee. This ranges anywhere between 3%-5% of the total amount you intend to transfer.
At first, this may seem like a steep fee. However, when you compare it to interest over the long term, you usually end up saving money. You should compare the initial transfer fee to what you would pay in monthly interest.
When you apply for a new credit card, the credit bureaus “pull” your credit. This pulling results in a hard inquiry on your credit report.
A hard inquiry isn’t inherently bad. However, it can result in a fluctuation in your credit score. This applies whether or not you become approved for the card.
Closing other cards (to make the balance transfer) also impacts your average age of accounts. It also results in less total available credit. These are two determining factors that help compose of a healthy credit card.
0% Balance Transfer Credits
Many credit card companies offer 0% promotional interest rates if you transfer your credit. The low APR can be extremely advantageous. On the one hand, you reduce paying additional interest. On the other hand, you (hopefully) become incentivized to pay down the remaining debt aggressively.
That’s because zero-interest offers have temporary windows that usually end within six months to 2 years. If you intend to transfer to a 0%-interest offer, you want to aim to pay off your debt within that window.
Once the lower APR window finishes, you’ll transition to the higher APR. This APR depends on the institution and varies according to the time period.
Unfortunately, many borrowers transferring balances only pay the minimums on their accounts. But only paying minimums is a costly mistake.
Having a lower APR isn’t a good excuse for only paying the minimum. Again, now is the time you need to focus on paying your debt down aggressively.
Adding more debt counteracts the point of opening a new card. If you find yourself tempted to spend more on a new card, then you need to be cautious before your application.
How To Pick The Right Card For Your Needs
There are numerous options available for transferring your balance. You should first consider how much total money you intend to transfer. Keep in mind that you may not be able to transfer the full amount to a new card.
Always read the fine print. Again, most balance cards have balance transfer fees. You need to do your due diligence to ensure that the transfer is financially worth the new card application.
You’ll also need to consider credit limits. Credit limits vary depending on the card issuer and your credit score.
You may not necessarily be approved for a limit that covers the full balance. Furthermore, some issuers have a set, maximum balance transfer limit.
Applying For The Card
Once you find the appropriate card, it’s time to send in an application. You can usually do this online through the financial institution’s website.
Once you fill out your information, submit the application. You may receive instant approval, or it may go to “pending” for a few hours or days.
To transfer the balance, you should contact the new credit card company with your request. You can also do this online or via phone.
You’ll need to tell the new company your relevant account numbers and how much of the balance you’d like to transfer. Keep in mind that the transfer can take a few days to over a week. You should still make payments on your old card until receiving confirmation that the transfer has been completed.
After the new company approves your balance transfer, you’ll receive a new, updated balance. If you transferred the full balance, the old cards would no longer have any existing balance. If you only transferred some of the debt, you’ll still need to make payments on the old accounts.
Make sure that you’re diligent with your payments in a timely manner. Even just one late payment can terminate the low introductory rate.
At that point, if you’ve transferred the full balance, it’s up to you whether you want to keep your old card open. As mentioned, closing a credit card early can hurt your credit score. However, if you think you’ll be tempted to continue spending money on the card, it might be easier just to close it altogether. Another option is to leave the account open but cut up the card so you can’t use it.
Final Thoughts On Balance Transfer Cards
Balance transfer cards can be an excellent way to tackle your debt and consolidate your finances. The right card can help you reduce (or eliminate) your interest rate significantly.
Don’t have a balance to transfer but still interested in applying for a new card? We’ve got you covered. Check out our guide on the best cards now!
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