A balance transfer occurs when you move a high-interest debt from one or more credit cards to another card with a lower interest rate. This technique helps you to apply more of your payments to the principal balance each month instead of interest charges, which can help you eliminate your credit card debt faster. Here are five tips to understanding balance transfer credit cards.
- Transferring Debt is not Repaying. If you use a balance transfer card, you are paying off card “A” with new credit card “B.” For example, if you have a $2,000 debt with an interest of 17 percent, you have to pay a minimum of $48 for more than five years, and paying an interest of more than $1,000. You can transfer the $2,000 debt to a 0 percent card for 15 months with a 3 percent balance transfer fee. You will pay around $138 for the 15 months, and you will have saved a substantial sum in interest charges.
- Consolidating can simplify Multiple Payments. Transferring debt to a single low-interest credit card simplifies your financial life. If you have high balances on many high-interest credit cards, and you have a difficult time paying off the debt, transferring all your debt to one card can be a good move. You will have just one card to keep track of and one payment to make each month.
- You can Transfer huge Debts. You can transfer more than balances from one credit card to another. You may move costly loans for cars, furniture, and other monthly installment payments to a zer0-interest balance transfer credit card, using balance transfer checks from the bank that issues the credit card. Research the right card and promotional offer to save the most money while managing your debt.
- Fees are Inevitable. The balance transfer is not free. You will always pay a balance transfer fee, which is a percentage of the total amount you are transferring. The most common balance transfer fee is 3 percent. If you move a $10,000 debt from one card to another, $300 will be added to your new card immediately. Before you apply for a new balance transfer card, use a balance transfer calculator to do your math to see if it makes financial sense to move forward.
- Adding new Debt. Just because the transferred balance gets a free pass with 0 percent interest rate, does not mean that new purchases on the card will be interest-free. The zero-balance on the card you just cleared may tempt you to use it again. Do not fall into that temptation. Some balance transfer credit cards specify rules stating that only transferred balances qualify for the lower rate. New purchases collect interest at the regular, higher APR. You will also find some cards that will apply the introductory interest rate to new purchases. However, adding more debt to your card’s balance will make it difficult to pay off.
Now you know how balance transfer credit cards operate. You can now service your loans with ease. If you are looking for a loan, loanable.com offers multiple options and repayment methods to consider.