What Is A Balance Transfer? Should I Consider It?
Don’t overlook a balance transfer. If you have credit card debt and are paying a ridiculous amount of interest this is actually a good strategy that could save you hundreds of dollars!
A balance transfer is simple…you use the credit given to you by another credit card to pay off the balance on the credit card with the high interest rate. Just like that, you’ve transferred the debt to the new credit card.
To give an easy example, lets say you owe $1,000 on a 20% APR credit card and you want to pay it off in 12 months. Your monthly payments will be $92.63 and you will end up paying $1,111.56 on what was originally $1,000! If you’ve got the right credit card, a balance transfer can save you a lot of cash. But before you begin to apply for a new credit card read these tips. The wrong move can be a costly mistake…
Check your credit
If you’re going to make a balance transfer, you’ll want to apply for a credit card that has a 0% APR promotion. Read the promotion carefully and if you have any questions, call the lender. Before you apply, do yourself a favor and check your credit score with Credit Karma or by contacting the credit bureaus. Don’t apply if your working on rebuilding your credit score and history. You may run the risk of getting declined and having a new inquiry on your credit report (not good).
Interest rates and fees
The interest rates and fees can get tricky and the banks can get slick with this. Many credit cards charge a 3–5% one time fee for the balance transfer. Overall, the fee is minimal compared to the amount of interest costs you will be saving, but don’t go in blind sided. Also, credit cards’ APRs can be one number but a balance transfer APR can be a whole different one. Do your due diligence and triple check the interest rates on this new credit card. Don’t get suckered in so easily.
Terms and conditions
I know, we all hate it. I hate it too, but I recommend that you do this because it will give you FULL insight on what you are applying for. The purpose is to not be blind sided and to be influenced by really good marketing tactics. If there is anything confusing about the terms and conditions, call the lenders’ customer service line and don’t be afraid to ask.
The bottom line is that you don’t want to make a mistake when you are making a balance transfer. That’s why I’m promoting extra caution. However, if you’ve done your homework and have found the right credit card to make this balance transfer, then go for it! You will definitely save money and every dollar you can save counts.
If you’ve got credit card debt, the number one rule is to stop adding more debt! You’ve got to live below your means, live by your budget, and create a strategy to pay off your debt as fast as possible.
Originally published at financialfluency.org on July 12, 2017.