Credit Card Balance Transfers: How to Come out Ahead

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Credit Card Balance Transfers: How to Come out Ahead

Written by Chrissy Kapralos
Fact-checked by Caitlin Wood

Credit Card Balance Transfers: How to Come out Ahead

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Credit Credit Card Debt Credit Cards

When your credit card debt is out of control and you’re looking for anything that can help you out, a credit card balance transfer probably seems like the answer to all your problems. Unfortunately the issue is, debt is a huge money maker for all credit card companies, and this means they won’t make it easy for you to become debt free.

A balance transfer can be a great financial tool, but you must fully understand all the ins and outs of both your current credit card and the credit card you want to transfer your balance to before you make any final decisions or signs on any dotted lines.

What is a Credit Card Balance Transfer?

Much like the name explains a credit card balance transfer is when you transfer your credit card balance from one card to another. More often than not you’ll transfer between credit card companies as well. The reason for this is because typically people who transfer their balances aren’t happy with their current interest rate and are able to find a lower one with another company.

The main reason a person might transfer their credit card balance is to save on interest, people who have large amounts of credit card debt also pay extremely high amounts of interest. Credit card companies understand this issue and often offer low introductory interest rates on balance transfers to new customers, they do so to try to lure in new cardholders who might then purchase more of their financial products or take advantage of their financial services.

Is your credit card annual fees worth it?

Advantages and Disadvantages of a Credit Card Balance Transfer

Credit card balance transfers can be helpful for the right person and scenario, but detrimental to the wrong person and scenario. Consider these pros and cons before applying for a credit card balance transfer.

Advantages

Here are some advantages of a credit card balance transfer:

Consolidate Debt 

Through a credit card balance transfer, you can combine, or consolidate, more than one credit card balance onto the same card. Putting all of your credit card debt into one balance through a transfer helps you tackle your debt faster by allowing you to make single, monthly payments toward the same balance. Tackling one debt is easier to manage than multiple debts – with a credit card balance transfer, you won’t have to manage multiple payments and due dates like you would with multiple credit card balances.  

Lower Interest Rates

Credit card balance transfers offer the potential of saving money on interest. By consolidating your debt into one balance, you will often see a better interest rate with your credit card balance transfer. Many transfers also offer low introductory interest rates, usually for the first year, which helps you focus your payments on your principal rather than interest. 

Pro tip – if possible, try to pay off your debt before the introductory interest rate period lapses! This way, you can save on interest charges.

New Credit Card, New Perks 

Not all credit cards are equal. Some have high-interest rates and minimal rewards, while others might offer more manageable interest rates, and certain perks like cash back on purchases, travel rewards, decent points plans for specific purchase categories, low annual fees, and high credit limits. Depending on your financial and personal situation, your credit card can complement or contradict your lifestyle. Through a credit card balance transfer, you may have the opportunity to switch to a new credit card that offers more rewards more suitable for your life situation. 

Disadvantages

Although credit card balance transfers can help you save in many ways, it’s important to keep an eye out for the details that may hold you back. 

Balance Transfer Fee

Balance transfer fees are charged any time you move one credit card balance to another. Often 3-5% of your transfer balance, this fee should be considered before deciding to transfer any balances. For example, if you were to transfer a balance of 10,000 to another credit card, and the balance transfer fee is 3%, you would need to pay $300 upfront. 

There are, however, some balance transfer cards that may waive this transfer fee, provided that you complete your balance transaction within an agreed-upon time frame. 

Find out if you should use a personal loan or a balance transfer to consolidate your debt

The Low-Interest Rate is For a Limited Time

While a low, introductory interest rate can be an advantage of a credit card balance transfer, it can also be a disadvantage since it doesn’t last forever. Appealing 0% APR rates are only offered for a short period of time, anywhere from 6 to 21 months. You’ll want to plan ahead and assess how long it will take you to pay off your transferred debt. This will help you budget for higher interest fees that may show up after the introductory period. 

Check out how you can pay off your credit card balance with a loan.

You May Not Qualify

To be eligible for a credit card balance transfer, you’ll often need a decent credit score. If your credit score is low, you may still be considered, albeit with a higher interest rate, which may cause you to reconsider the credit card balance transfer altogether. 

Potential For More Debt

Credit card balance transfer agreements might entice you with low-interest rates and minimal fees in the beginning. If you’re looking to pay off your debts, transfers can help you do that. However, be conscious of the temptation to make more purchases with the new card’s appealing interest rates. If you look at a transfer as a way to purchase more items, you’ll just rack on more debt. 

Make sure you have a clear plan on how you plan to pay off your debt with a credit card balance transfer, to help you stay on track. 

Steps You Should Take to Come Out Ahead

To ensure you make the most out of a credit card balance transfer, make sure you consider the following steps:

Can You Qualify?

Check your credit score to ensure you qualify. With a low credit score, you risk higher interest rates even if you do qualify. 

Review Your Finances

It’s important to assess your financial situation before deciding to do a balance transfer. Ask yourself:

  • How much credit card debt do I need to transfer?
    • Remember, you often won’t be able to transfer all of your credit.
  • What’s my current interest rate(s) and what will the transfer card interest rate be?
    • Make sure your new interest rate is significantly low enough to make it worth it!
  • How long do I need to pay off the balance?
    • Balance transfers have time constraints, with harsh penalties if you don’t pay on time. Consider alternatives, like debt consolidation or personal loans, if you need more time. 

Don’t Forget to Read The Fine Print

Remember to examine the terms and conditions of your credit card balance transfer agreement. You will find that some transfers have hidden or high transfer fees, lower credit limits, card restrictions, and higher interest rates on new purchases.

Apply and Pay Off Your Debt

Make sure you have all of your information ready for your application, including your personal information, bank account information, and the amount of debt you are looking to transfer. Once your application is approved, your old balance, including your balance transfer fee, will be added to the new credit card. 

Now that you’re all set, make sure you keep track of your payments and pay on time. Late payments can compromise your low, introductory rate. 

What Should You Look For in a Credit Card Balance Transfer? 

Before applying for a credit card balance transfer, it’s important to find a plan that will help you settle your debt the fastest. You should look for these three things:

Balance Transfer Fee

Aim for a low, or a non-existent balance transfer fee. If your transfer balance is large, say, in the thousands, you’ll be spending a couple of hundred dollars before you even begin paying off your debt. 

Interest Rate

Aim for a 0% interest rate for your first year. This gives you an incentive to try to pay off your debt as quickly as possible. 

Annual Fee

Aim for minimal annual fees. Make sure you examine your terms and conditions to find out about any hidden fees. 

Balance Transfer FAQs

What’s the catch with credit card balance transfers?

While a balance transfer can be a useful tool, it isn’t a perfect one and sometimes it can be extremely expensive. Like we said before, credit card companies offer low introductory interest rates to try and lure in new potential clients. But of course there’s a catch, these low interest rates typically only last for 3 to 6 months and then you’ll be back to dealing with a high interest rate again, maybe one that’s even higher than your original interest rate. Furthermore, there is usually a fee associated with preforming the balance transfer. This fee could be anywhere from 1% to 5% and depending on how large of a balance you want to transfer, you could end up paying quite a hefty fee.

Should I use a balance transfer or a personal loan?

  Depending on your financial situation, a balance transfer or personal loan can both be good options. Balance transfers have lower interest rates, especially in the introductory period, and can be a great way to tackle debt if you can manage to pay it in a short amount of time. Personal loans have higher interest rates, but lower interest rates than a credit card balance transfer after the introductory period, and longer terms. If you need more time to pay off your debt, a personal loan is a better option. 

What is credit card balance protection insurance? 

Credit card balance protection insurance is a type of loan insurance that protects you financially in the event that you aren’t able to pay off your balance. You usually need to sign up for credit card insurance, or express consent, as it isn’t included when you apply for a credit card. Banks, credit unions, and credit card companies offer credit card insurance.  This type of insurance protects you in various scenarios, such as:
  • Losing your job or striking
  • Hospitalization or illness
  • Death
  • Injury 
Credit card balance protection insurance might be appealing to you if you aren’t covered under any other insurance policy. These insurance plans are often expensive, with high monthly premiums. However, depending on the insurance policy, any of the above life-changing events can result in your credit balance being paid off in full, or an agreed-upon amount every month until the benefit runs out. 

Final Thoughts

Overall, credit card balance transfers can be a great way to help you pay off your debt faster, at a minimal cost. Remember to shop around for the most suitable contract for your lifestyle, and consider other loan alternatives if necessary.


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