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In credit card debt? Having a hard time paying off your high-interest balance?
If this rings true, you may want to transfer your balance to another card for a much lower interest rate. Depending on your situation, you may be able to pay off your debt faster, allowing you to put your hard-earned cash into your savings account.
But before you make any decisions, read on to learn more about balance transfer credit cards.
What Is a Balance Transfer?
A balance transfer is when you move your debt from one account to another. While it may seem counterintuitive to transfer your debt from one credit card to another, it’s a convenient way to obtain a lower interest rate and hopefully pay off your balance faster.
A balance transfer can allow some people to pay off their debt, but keep in mind that this may not work for everyone. Most of the time, when you initiate a balance transfer, you’ll get an introductory low interest rate. After a set amount of time, however, that interest rate goes back to the usual rate (the national average was 16.20% as of September 2021). So, if you’re the type who can’t pay off your debt within a timeframe, then a balance transfer card may not be for you.
It’s also important to note that a balance transfer is not debt forgiveness or debt repayment. It is simply a way to temporarily lower the interest rate on your debt.
Is a Balance Transfer Credit Card Right For You?
Before you run out and apply for a balance transfer card, or search for card offers, consider these personal finance items:
In order to receive approval for a balance transfer credit card, you typically must have a good to excellent credit score. According to Experian you should aim for a credit score that is 670 or higher. Check out these ways to improve your credit score.
Credit Card Payments
Have a balance on more than one credit card? A balance transfer is an excellent way to consolidate multiple lines of credit. This way, you only have one low interest payment to worry about, making it easier to stay on track when repaying your credit card debt.
Personal Spending Habits
Be honest with yourself: Can you really open another credit card without being tempted to overspend? If not, then a balance transfer card may not be the best option for you. Evaluate your spending habits and savings goals before applying for another credit card.
Choosing the Right Balance Transfer Card
If you decide that a balance transfer is the right choice for you, it’s important to evaluate your options. Here are some key questions to ask when looking for the best balance transfer card:
- How long is the introductory period? Many credit card companies will offer a 0% interest rate during the introductory period. To boot, the longer the introductory period, the more time you have to pay no interest or a super low rate. For this reason, look for a card with the longest introductory period possible.
- What’s the balance transfer fee? Typically, credit card companies charge a balance transfer fee of between 3% – 5%. Depending on how high your balance is, this can quickly become costly. Before you dive headfirst into a balance transfer, assess your situation to make sure you can afford the fee. Most card offers list the balance transfer fee upfront, but if you are unsure, take a closer look at the card agreement.
- Can you transfer the whole balance? While you may be approved for a balance transfer credit card, this doesn’t mean you can automatically transfer your entire balance to your new card. In fact, your new approved line of credit may be less than what your previous credit card allowed. If this is the case, you can still proceed by transferring some amount of money to your new balance transfer card. You can then pay the minimum balance on the transfer card during your introductory period, while aggressively paying down the debt on your high-interest credit card.
How to Transfer Your Credit Card Balance
The exact process might vary by issuer, but in general here are the steps you need to take in order to transfer your credit card balance from one card to another.
- Apply for a card: Remember to look for a card with an introductory 0% APR offer on balance transfers. Also consider the length of the promotional low-APR period and any fees.
- Determine which balances to transfer: The best way to do this is to first transfer cards with high interest rates. This will hopefully help you pay off your balance quicker.
- Initiate the balance transfer: You can do this either online or by phone. You’ll need to provide information about the debt you’re looking to move, such as the issuer name, the amount of debt, and the account information.
- Calculate and pay balance transfer fees: Some credit card companies may waive the balance transfer fees (which typically range 3% – 5% of the transfer amount). Read the fine print to figure out if you’ll have to pay any fees.
- Start making payments: Once the transfer has gone through, your transferred balance will be on the new card. Try to pay off your balance — or at least most of it — within the introductory period when your APR is the lowest. This could save you a lot of money.
Balance Transfer Credit Card Pros and Cons
Now that you know what a balance transfer is and how it works, let’s summarize what we learned. Here’s a breakdown of the advantages and disadvantages of using a balance transfer credit card.
|Save money on interest||Promotional rates and APRs will expire|
|Consolidate your debts||Fees are usually inevitable|
|Pay down debt faster||Multiple balance transfers can negatively impact your credit score|
|Earn rewards and other perks (some cards offer this)||Is not meant to be a long-term solution for debt problems|
Always weigh the pros and cons before opening any type of credit card. And remember, a balance transfer credit card can only do so much when it comes to alleviating debt; ultimately getting out of debt will depend on you and your spending habits.
How do balance transfers work?
A balance transfer works by transferring your existing debt on a higher-interest credit card to a credit card with a lower interest rate. This can save you money by saving on interest, and could even help you pay off your debt more quickly.
What is a balance transfer fee?
A balance transfer fee is a fee commonly charged by credit card companies when a borrower transfers existing debt from one card to another. Fees generally range between 3% – 5% of the total amount transferred. In order to entice new customers, some lenders may charge no or low balance transfer fees as introductory offers.
Which types of debts can I transfer to a credit card?
Credit card issuers have different restrictions on the types of balances you can transfer, so be sure to check your card’s terms. Most lenders will allow you to transfer balances from other credit cards and loans, such as a personal, auto, or student loan. However, you may not be able to transfer balances between accounts that you have with the same financial institution or credit card company.
Will using a balance transfer credit card improve my credit?
A balance transfer credit card is going to help pay down larger debts, which will essentially increase your credit score, if you are making consistent on-time payments. Keep in mind that when you apply for a new line of credit, a hard inquiry is made on your credit report, which can lower your credit score several points in the short term.
How long does a balance transfer take?
Depending on the banks involved, a balance transfer could take several weeks or more to complete.
Is a balance transfer a good idea?
A balance transfer can be a useful tool to pay off credit card debt faster at a lower interest rate. But before going down this route, do your research to figure out if it’s a good idea for you and your financial situation. Consider transfer fees, your credit standing, and financial habits before opting for a balance transfer credit card.
When getting a new balance transfer card, make sure you don’t bite off more than you can chew.
For example, it’s not wise to clear up the balance on your old card just to max out that new credit card. Keep your end goal in mind: You want to get out of debt. With this on the forefront of your mind, you’ll be more apt to accomplish what you set out to do – improve your financial well-being.