Dealing with several credit card debts is tough, especially as high interest ramps up quickly. For such situations, balance transfer credit cards offer holders the opportunity to consolidate several credit card debts into a single account with a lower, or even 0%, introductory interest rate. This provides an opportunity to pay off debt and save on interest. If used the right way, a balance transfer credit card could be the first step towards living debt free.
What Is a Balance Transfer Credit Card?
Balance transfer credit cards let you transfer existing debt from one or more credit cards, to another credit card that has lower or even 0% interest rates for a set amount of time. This 0% interest rate can last anywhere from 6 to 21 months.
This period allows card holders to pay off debts without high interest accumulating. When this introductory period of 0% interest is up, the card moves into the regular interest period. This offer helps people with high debt to pay off debt in a structured way as the rate is lower.
How Balance Transfers Work
Although transferring a balance may seem simple, it needs to be thought through. After getting a balance transfer credit card, you ask the issuer for balance transfers from your old cards to the new one.
The issuer of the new cards pays off those balances, and you owe the total balance to them. Most issuers also charge a balance transfer fee, usually around 3% to 5% of the transferred balance. While this fee may seem like an additional cost, the savings from reduced interest that you will pay in the long run will probably be worth the fee.
Benefits of Using Balance Transfer Credit Cards
The most obvious benefit of a balance transfer card is savings. Instead of letting your balance continue to grow because of high interest, you focus your payments entirely on the principal. This will make it easier to pay off your debt. Having one account also offers the advantage of simplicity. People also experience a psychological benefit when they see their debt shrink, which will encourage them to control their spending in the future.
Choosing Balance Transfer Credit Cards
When comparing balance transfer credit cards, you would like to know which one offers the lowest transfer fees, longest promotional duration, the lowest APR, as well as the other features you desire and require, in the form of rewards and cash back. The Wells Fargo Reflect Card, Chase Slate Edges and Citi Simplicity Card are all balance transfer credit cards with extended 0% APR plans.
Once again, transfers may not be permitted by the issuers of the securities, since even in cases where the issuers permit balancing transfer between their accounts, they do not permit balancing transfer between their own accounts and other accounts. It is worth noting that you would want to ensure before proceeding.
When a Balance Transfer Makes Sense
People with a pay down debt strategy for the promotional period will find a balance transfer most useful. If you have a high interest credit card and stable income to cover monthly payments, a balance transfer will relieve the burden.
However, if you continue to use other credit cards and/or incur debt, a balance transfer will relieve the burden. In such a case, the balance transfer will be most useful. Having a strategy to pay down the debt is important so the balance transfer will provide the
Impact on Credit Score
Balance transfer credit cards can impact credit scores due to hard inquiries, but they can also improve them in the long run if they are managed properly. Consolidating credit accounts lowers the ratio of credit available to the customer, which is one of the key factors in credit scoring. Account payment sends positive signals to scoring agencies. Over time, your score can improve significantly more than the initial dip caused by opening a new credit line.
Tips for Getting the Most Out of Your Balance Transfer Card
When getting a new balance transfer card, first calculate the transfer fees and check the total savings. Set a payment plan to finish paying your total balance within the interest-free period.
Don’t add new purchases to the card, as they often aren’t interest-free. Finally, pay on time—set up automatic payments. Staying within the time limits, and paying as planned, ensures you get the most out of the card offer.
Balance Transfer Card vs. Personal Loan
Balance transfer cards and personal loans are two types of debt consolidation yet different. When you have a personal loan, you receive a lump amount in cash and pay interest on the same but a balance transfer card allows you a specified period of time in which you can pay off your debt without making interest. Balance transfer cards tend to be better when the objectives are short term or when the debt
amounts are small. However, it is more effective when dealing with a big loan that will require a long duration to repay with a personal loan as it has more predictable payments and therefore, it balances out cash flows. The ability to repay debt and loan and your spending habit will assist you to make a decision on the more favorable one.
How to Apply for a Balance Transfer Credit Card
To apply for a balance transfer credit card, you follow the steps you would take for any credit card application. You need to look for balance transfer credit cards from some credit card issuers, vet the different card features, and look at your credit score. You need to have at least a good credit score, which is at least 670.
After you get the card, you can do the transfer from the card issuer’s website, or you can call the customer service line. After this, you will need to wait 1 to 2 weeks for the transfer to complete. During this time, make sure you keep paying with your old card to keep it active during the transfer process to avoid missed payments.
Long-Term Financial Advantages
Managing a balance transfer card well can lead to long-term benefits. Keeping within your credit limit during the 0% APR period and paying off your debt will help improve your credit score. The new credit score will help you qualify for credit cards and loans at a lower interest rate. The new credit will also help you get premium credit cards. Gaining the discipline to manage your debt will also help improve your overall credit score.
Conclusion
Balance transfer credit card may be a decent way of managing high-interest debt. These cards provide sufficient time to the borrowers and enable them to take control of their money. These cards enable borrowers to get out of debt at a faster rate and enhance their credit rating. It all ends up in discipline in paying on time, not taking new debt and adhering to a repayment plan. A balance transfer credit card is one of the options that can be used to begin your quest to financial freedom.