The Lowdown on Balance Transfer Credit Cards
Getting the Most Out of Transferring Your Credit Card Debt From One Card to Another.
With the prevalence of credit card debt and the average APR being around 16%, it is great to have the option of a balance transfer. A balance transfer is exactly what it sounds like; moving your debt from one credit card to another. So what’s the big deal? For one thing, you can consolidate all of your debt onto one card, making it more manageable. Also, you can save money because balance transfers usually offer little to no APR on the balance for up to a year. Certain factors come into play when choosing the right balance transfer credit card, and working out these details before making your decision is very important. By assessing your debt situation and making the right card choice, you can easily be on your way to good credit and a debt free life.
What are they all About?
When you get to the point where you think your interest rates are too high and you feel like your payments are having little effect on your balance, it is probably time to look into a balance transfer. After you have been approved for the new card that you want, you transfer your balance to the new card. Usually you have to do this as soon as you get your new card, to take advantage of the introductory offer. Most companies will allow you to transfer your debt online, which is probably the easiest way to do it. You now have a balance with a new credit card company and your old balance is paid off. If you have more than one credit card with a balance on it, it is best to transfer the balance from the card with the highest interest rate. While this all sounds simple, there are many factors that go into assessing your debt and choosing the right card.
The Best Card for you
The first thing to look at when choosing a card to transfer your balance to is the initial interest rate. Your best bet is to go with a card that has a 0% interest rate. This period can last anywhere from six to 14 months, but be sure to consider your debt and your monetary situation. If you can’t afford to pay off most of the balance during the introductory period, you might get stuck in another high interest rate. A card that has a 0% transfer fee is good because you could possibly end up paying a lot more than you were anticipating. High transfer fees or fees that are not capped could cost you a lot on a large balance transfer. Some cards will force you to forfeit your introductory rate if you miss a payment and some may fool you into thinking there is a low interest rate when in reality, it only applies to any new balance you accumulate on the card. Be on the look out for all of these things, because little fees here and there will add up if you do not pay attention to them.
Cards with low fixed APRs are good if you plan on carrying a large debt for a longer period of time. Unless you miss a payment, you will never have to worry about the APR jumping up and you may not have to worry about transferring your balance to another card. If your debt is small, cards with 0% introductory rates are much better for you if you can afford to pay most of the balance off.
If things work out well on the card that you transferred your balance to, you can ultimately shift that balance to another card. Before your introductory rate is up you can apply for a new card that has a similar initial APR. Your balance can be transferred to this new card and you can take advantage of another period of low or no interest rates. This will not only save you money, but if you make your payments on time and pay down your balance, your credit score will increase. Just remember to close out the account that you shifted the money from, because the more cards you have the more you hurt your credit score.
Additional Things to Consider
Many times there are various fees associated with these types of credit cards such as annual fees or application fees. Also, be aware of cards that employ the two cycle average daily balance method, which averages the last two cycles of your balance. This will result in a higher monthly balance.
In some cases, you may be able to use your balance transfer card to pay off non credit card debts. An example of this would be if you have overdrawn on your bank account. You can borrow money from your new card to pay this off and then have the luxury of paying it back on your card with perhaps a 0% APR. Something else to watch out for is a card with a 0% balance transfer for life agreement. With these cards you are required to make a certain amount of monthly purchases and then make minimum payments on them. These payments go towards your transferred balance, and not the purchases, so the purchases end up collecting interest. When you fail to make the minimum number of monthly purchases, you may lose your 0% APR and you will have to pay the standard rate on everything. This ends up being more of a hassle than advertised and is not worth it.
Take a look at all of your options when looking for a balance transfer card. Some cards also offer great rewards deals and the 0% introductory rate can sometimes apply to new purchase as well as cash withdrawals.
Tying it all Together
When you have decided that it is time to transfer your balance to a new card, take into consideration the little details that surround the process. A card with no or a very low introductory rate is ideal for a balance transfer. It will save you from paying the high interest rates that you are stuck in with your current card. Be sure to calculate the length of the introductory rate and anticipate your payment schedule, so that you can take full advantage of the low APR. Failure to pay off the balance that you have transferred can lead you back into higher interest rates, which is what you wanted to get away from in the first place. Go over the little things in the fine print like annual fees and transfer fees. There are many things that can be tacked onto your balance transfer and they can really add up if you do not pay attention to them.
Your intention for making a balance transfer is to consolidate your balance and make it easier to pay off. Do not let that new 0% interest rate fool you into thinking your debt has vanished. It may be tempting to spend away on the new card because of this low APR, but that is going against your main goal. This is a brand new chance to pay off your debt quickly and you should take full advantage of this new opportunity.
Missing a payment on your new balance transfer card can have devastating effects. In many cases, one late payment can lead to the removal of your 0% introductory rate and you will get thrown into a high rate once again. Also take into account the fact that immediately canceling the cards that you have shifted your balance from can hurt your credit score. Once you have paid off the balance on your new card, cancel it instead.
As far as purchases on your new card go, be very careful about charging new items to the card. Standard interest rates will be applied to new items that you purchase and your payments will go towards the balance with the lowest interest rate first. This means that while you are paying off your newly transferred balance, your new purchases will rack up interest until you have finished paying off your original balance.
A balance transfer can be a great tool if you take full advantage of it. Always take the time to contemplate your debt situation before you make any kind of decision. Determine whether your debt payment plan is going to be long term or short term. A long term situation might benefit more from having a low fixed APR instead of a relatively short introductory rate of 0%. Remember that continuing to pile up an additional balance on your new balance transfer card will only put you back into a bad situation. Your balance is what got you to this point in the first place, so be wary of adding to it. Properly assessing your entire situation and taking everything one step at a time can only benefit you in the end. If the main goal is to wipe out your debt, why not be smart about it? Balance transfer credit cards are very helpful tools if used appropriately, and you can be living a debt free life in no time if you play things right.
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