THIS PAGE MAY CONTAIN AFFILIATE LINKS. MEANING WE RECEIVE COMMISSIONS FOR PURCHASES MADE THROUGH THOSE LINKS, AT NO COST TO YOU. PLEASE READ OUR DISCLOSURE FOR MORE INFO.
If you have a significant amount of debt on your existing credit cards, you might have gotten some offers for balance transfer credit cards.
What exactly is a balance transfer card, how does it work, and is it the right solution for you as you work your way out of debt?
Read on for the answers to these questions:
What is a Balance Transfer Card?
A balance transfer card is simply a credit card that has a lower interest rate than the ones you currently carry.
So by moving some or all of the balance from one or more high-interest credit cards to the new “balance transfer card,” the cardholder can save a significant amount of money on their credit card interest.
If you transfer the balances of a number of cards onto the same balance transfer card, not only can you dramatically reduce your credit card debt, but you also cut down on the number of minimum payments you need to make each month on your credit cards. Win-win!
As if that weren’t enough of a reason to look into balance transfer credit cards, the lower APR (annual percentage rate) on the new card can make it possible to pay off credit card debt faster, with less interest.
Easier payments, interest accruing at a lower interest rate and the ability to pay off credit card debt faster all make balance transfer cards an extremely attractive option, and one that’s worth researching.
The Balance Transfer Process
First, it’s a good idea to go through your credit card statements and make a note of the balance and APR on each.
That way you can get a better idea of how much you can save by transferring your balances, and which balances are worth transferring.
Armed with that information, you can take the next step:
Choosing a credit card that has a lower APR than your current card or cards. Those credit cards that are marketed specifically as balance transfer cards also often come with an introductory period of 0% interest -- but more on that later.
Once the balance transfer from your old card(s) is complete, you begin making payments on the new credit card.
The faster you can pay off the balance, the better -- but you’ll still end up paying less in interest than you would have otherwise, as long as you make regular payments.
Is A Balance Transfer Card The Right Choice For You?
Do you want to pay less in credit card interest? Then it’s definitely at least worth looking into balance transfer cards and what they have to offer.
Generally speaking, if you’ve built up a significant amount of credit card debt on one or more cards, and/or have difficulty keeping up with multiple monthly payments, transferring a few balances to one card can be helpful purely in terms of bookkeeping.
Many credit card users turn to balance transfer cards as an easy form of debt consolidation.
Add in the lower APR, and the benefits of using a balance transfer card become clear.
Do I Need Perfect Credit To Apply For A Balance Transfer Credit Card?
There are plenty of balance transfer cards available for those with good credit (credit scores of 680 and above).
The best “perks” always go to those with the best credit, of course -- people with excellent credit (a credit score of 750 and over) can expect to be offered balance transfer cards with higher limits, lower interest rates, a 0% interest introductory period, and/or no balance transfer fees.
Even if you have “good” credit (a score of 680-749), you can still find balance transfer card deals that make it well worth the effort of applying for another credit card.
When you get down to “fair” credit, however, things become a little more tricky:
The interest rates aren’t as low, the credit limits are lower (making it difficult to transfer full balances), and there may or may not be a 0% interest intro period.
If you’re interested in using balance transfer cards to help you get out of debt but have fair credit (or bad credit, meaning lower than 600), it may be a good idea to work on building up your credit score first.
You can do this by getting a secured credit card for a while to help boost your credit score.
The offers are often so much better when you have a higher credit score that it’s worth the wait.
All About Balance Transfer Fees
To know if you’re getting a good deal on your new balance transfer card, you need to pay attention to all the fine print -- including the balance transfer fees.
If you have excellent credit, there may not be any fees or they might be much lower than usual.
More commonly, though, balance transfer fees range from about 3-5% and may need to be paid immediately after the transfer.
And if you’re looking to transfer a balance in the thousands of dollars, you could end up paying hundreds of dollars in transfer fees.
Balance Transfer Cards And Annual Fees
Balance transfer credit cards often offer incentives such as “0% APR for the first year” or “no annual fee.”
Depending on the size of the balance you need to transfer, it may be better to go with a card with 0% APR for the first year, because the interest that accrues on a large balance is often higher than a fixed annual fee.
Do the math when comparing cards, and see which works best for your credit situation.
Things To Remember When Choosing A Balance Transfer Card
A balance transfer credit card can save you money if you use it wisely and pay it down aggressively instead of running up more debt. Some things to keep in mind:
●Most of the time you can transfer only part of a balance from an existing credit card if you wish.
●You can usually transfer balances from store credit cards, which tend to have higher interest rates than regular credit cards.
●There is no penalty for paying off the transferred balance early.
●Even if your existing credit cards have decent interest rates, a balance transfer card can help you consolidate them so you have fewer monthly payments to keep up with.
●If you have a problem with forgetting monthly payments, use AutoPay -- set it and forget it, and you won’t have sizeable late fees adding to your debt!
●You might still want to keep your older credit cards open after the balance transfer, since closing them could negatively impact your credit utilization ratio.
If you’re wondering if applying for a balance transfer credit card could affect your credit, the answer is that there will be a temporary dip in your credit score because of the credit inquiry the issuer will need to run.
However, your credit will quickly recover if you are approved for the card since your overall credit limit will be higher, improving your credit utilization ratio.
Just be sure to make those payments on time to reap all the benefits of a balance transfer card!