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 Credit Card?
A balance transfer card is a credit card with a low interest rate. 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.
Yet, while a balance transfer can allow some people to pay off their debt, it 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 (which is on average 19.24% according to WalletHub). 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 a debt repayment. It is simply a way to temporarily lower the interest rate on your debt.
When Should You Apply For a Balance Transfer Credit Card?
Before you run out and apply for a balance transfer card, be sure to take the following into consideration:
Your Credit Score
In order to receive approval for a balance transfer credit card, you typically must have a good to excellent credit score. According to Magnify Money, you should have at least a “good” credit score, which is a score between 670 and 739. Check out these ways to improve your credit score.
Your 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.
Your 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. Not sure where to start? Check out some of these 0% interest credit cards.
What’s the Balance Transfer Fee?
Typically, credit card companies charge a balance transfer fee of between three and five percent. Depending on how high your balance is, this can quickly become costly. Before you dive head first into a balance transfer, assess your situation to make sure you can afford the fee.
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 for you, 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.
Don’t Max Out the Credit Card Balance You Just Transferred
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 you end-goal in mind: You want to get out of debt. With this on the forefront, you’ll be more apt to accomplish what you set out to do – improve your financial well-being.