Credit Card Balance Transfers: All You Need to Know
By moving an old cc balance to a fresh card that has reduced or no interest for a certain period of time, you can cut costs and save proceeds if you use a cc that facilitates balance transfers. Credit cards that permit balance transfers typically provide 0% interest on converted balances for a period of one year or more.
Prior to converting a balance, it is crucial to make sure that the merits of doing so outweigh any costs that you will be demanded to incur as well as the possibility that you will settle the debt prior to the end of the promo period in which there is no interest incurred.
What you need to know about credit card balance transfers will be discussed further in this article.
What Are Credit Card Balance Transfers?
After your application for a cc that permits you to transfer balances is approved, you will be given the opportunity to specify which balances you would want to move to the new card.
After that, you will be prompted to input the account number for each of the credit accounts that you wish to transfer, as well as the total sum of proceeds that you intend to transfer to your fresh balance transfer cc.
In order to successfully accomplish the balance transfer, it is quite likely that you will also be demanded to incur a balance transfer fee. These fees typically range from 3% to 5% and have a minimum charge of $5 for each debt that is converted to a new card.
Please be aware that the process of moving a balance to a new balance transfer card typically takes approximately one week and one month.
Be sure to keep up with the regular payments on each of your current ccs until you can verify that your outstanding sums have been paid in full and that any remaining interest charges have been satisfied.
How Do Credit Card Balance Transfers Work?
During the time that you are paying off your cc debt, lowering your interest rate can help you save proceeds, which is the primary objective of a balance transfer.
You are permitted to convert a balance from one cc to another that is issued by a different company; however, you are not permitted to convert a balance from one card released by the exact company or any of its subsidiaries to another card issued by that same company.
You may be able to transfer the balance of other types of debt, such as personal loans, directly onto a balance transfer cc in addition to the debt you owe on your ccs.
You might also get physical checks from the card issuer that you can utilize to pay off outstanding sums on other accounts, such as auto loans or home equity lines of credit.
After that, the sum that you settle with the check will be added to the balance that you carry over from your balance transfer card, where it will begin to earn interest at the promo APR.
Benefits and Risks of Credit Card Balance Transfers
Benefits
- Pay absolutely no interest for a specific period of time. The correct balance transfer cc can help you save proceeds on interest for a period of up to 21 months, during which time you will not be incurred any interest on the balance you transfer from your old card.
As a result, you will have the opportunity to put aside dozens, hundreds, or even thousands of dollars as you work to eliminate your debt.
- Make the repayment process easier. Reduce the number of bills you have to incur each month by consolidating your debt with the help of a balance transfer cc. This type of card enables cardholders to move the outstanding balances from many existing accounts into a single new account, simplifying the process of debt repayment.
- Reduce your debts more quickly. Reduce your debts more quickly since you won’t have to worry about incurring any interest fees each month; instead, the full sum of each payment will be applied to reduce the principal sum. This indicates that you will be able to reduce your debt more quickly and with less commitment than before.
- Gain access to additional cardholder advantages. Some balance transfer ccs offer additional benefits to cardholders, such as consumer guarantees and the opportunity to earn points.
- This will result in an increase in your credit rating. It’s possible that moving your balance will raise your credit rating. Your credit usage ratio will often improve if you acquire a new line of credit. This is because more of your available credit will be put to use.
Your credit usage ratio will continue to decrease, which means that your credit rating must continue to improve if you do not take on any new debt while you are paying off your converted balances on a consistent monthly basis.
Risks
- There is a cost for moving balances. You will often be demanded to settle an upfront fee that is equivalent to 3% or 5% of your balance. This fee can chip away at the savings you would have made on interest. On the other hand, there are a handful of ccs available that do not charge a fee to transfer the debt.
- The promo prices are only good for a limited time. There are certain balance transfer offers that only endure for a period of 12 months, while others are good for 18 or 21 months. As soon as the promo APR term on your cc comes to an end, you will be subject to the standard variable APR that applies to any outstanding debt.
- Balance transfers are sometimes used as a stopgap measure for more serious issues. If you have a problem with using ccs beyond what is reasonable, using a cc that permits you to transfer balances could end up causing you more problems than it solves.
Always keep in mind that balance transfers do nothing but relocate the debt from one account to another and that changing your spending patterns is the only way to get out of this mess.
Can Credit Card Balance Transfers Hurt Your Credit?
There are a variety of factors that can have an effect on your credit rating when you convert a balance.
If you establish a new card to convert a balance, as well as what you should do after the balances on your previous cards have been moved. It’s unlikely that your credit rating will be affected if all you do is shuffle the balances around on the cards you already have.
If you consolidate your debts onto a single new cc and take steps to lower the total sum owed on all of your accounts, you may find that your credit rating improves as a result.
However, if you are continuously opening new ccs and moving balances, this could actually cause your credit rating to decrease. If you have an open balance and are considering moving it, it’s in your best interest to be as well-informed as possible before making the switch.
Are Credit Card Balance Transfers a Good Idea?
If your credit is good enough to get you a card with a 0% APR promo term and you can afford to pay off the entire sum or a sizable chunk of it in that time, you may want to think about doing a balance transfer.
A balance transfer may also be a viable choice for you if you are able to locate a card that does not charge a fee for moving a balance or if the proceeds that you would have to incur in transfer fees would not significantly reduce the sum that you have saved.
Under the appropriate conditions, moving your balance to a new cc can be your ticket out of the crushing burden of your monetary obligations, or at the very least, a significant step in the path of becoming debt-free.
Who Should Consider a Balance Transfer Credit Card?
One surefire way to cut down on interest payments on a large, unmanageable cc sum is to take advantage of a cc’s promo 0% APR balance transfer offer. Remember that you aren’t the only one going through this.
You might consider doing a balance transfer if any of the following apply to you:
- If you want to reduce your debt. If you are looking for a strategy to pay down cc debt, you aren’t the only one doing so because interest rates are hanging above 17 percent and everyone is looking for a solution to the problem.
People who are seeking a means to reduce their ever-increasing debt and are offered a promo period of zero percent annual percentage rate on ccs that permit balance transfers are good candidates for these cards.
- If you are the one who pays quickly. A balance transfer cc could be the smart move for you to make if you want a little longer time to pay off a certain balance, perhaps because you recently made a major purchase.
If you are able to settle your debt prior to the promo period with an APR of 0% coming to an end, you will be able to avoid being incurred any interest, which would otherwise be applied to your balance.
- If you are the one who consolidates. Converting several balances to a single card is an option to take into consideration if you are the type of person who likes to keep things neat and tidy but finds it difficult to keep track of multiple balances at the same time. You can reduce the number of payments you need to make each month by merging various balances into a single one.
Final Thoughts
Paying off debt with costly interest rates on ccs requires a lot of patience and self-control. Even though moving balances can offer you a head start on lowering that monetary burden, it is vital to keep in mind that this is not a foolproof approach.
Be sure to perform the math initially to determine whether or not the sum of proceeds you would conserve on interest is larger than the sum of proceeds that would be demanded to incur any balance transfer penalties. It is also helpful to determine whether or not you will be able to incur a sizeable percentage of your balance prior to the promo period ending.
