What Are Balance Transfer Credit Cards?
Have you recently received a “balance transfer” offer and wondered if it was right for you? If you have a balance on your credit card, store card or other loan, a balance transfer credit card could be a great way for you to save a lot money. Someone with $4,000 of debt, paying 19.99% interest, could save upwards of $750 in interest payments in one year alone! So, what are balance transfer credit cards and how do they work?
What are balance transfer credit cards?
A balance transfer credit card allows you to pay off your higher-interest balances from other credit cards (Visa, Mastercard, American Express), store cards (Home Depot, The Gap, The Brick, Hudson Bay, etc), personal loans and auto loans with your lower interest balance transfer card. You will only be able to transfer an amount that is less than your credit limit on the balance transfer credit card. So if your credit limit is $7,000, and you want to transfer an $8,000 balance, you will only be able to transfer $7,000 of the current balance.
How is a balance transfer done?
Balance transfers are easy. You’re credit card issuer will do all the heavy lifting. The process looks something like this:
- On your application, you will indicate which creditors you want to pay, the account numbers, and how much you want to pay to each creditor.
- Once you’re approved for the balance transfer credit card, the credit card company will contact your creditors on your behalf and pay them the amount you indicated. They do all the work for you. It can take up to two to four weeks for this process to be completed.
- You will want to pay any minimum payments on your other accounts during the transition process to avoid late fees.
How can balance transfer credit cards help you?
|Check Out How Much Interest You Could Save After 12 Months
|Your Average Balance||Department Store Credit Cards (28.9%)||Other Credit Cards (18.9%)||Balance Transfer Credit Card (0%)||Balance Transfer Card Could Save You Up To|
As you can see, low balance transfer credit cards can offer big savings on your interest payments, in addition to other benefits:
- A low balance transfer interest rate can help you catch up on your existing debt. Your low promotional or introductory rate, will save you significant sums of money you can use to pay down your debt.
- A low balance transfer credit card can also help reduce the time it takes to lower your debt. When you pay high rates, a lot of your payment goes to the interest rather than paying down the principal balance itself. Your low balance transfer credit card, will allow you to apply all of your monthly payments to paying down your balance, as opposed to interest, during the introductory period.
- Instead of paying many creditors on many due dates, consolidating all of your balances onto one balance transfer credit card means you only have to keep track of one payment a month—and not multiple cards with multiple due dates.
Beat the banks at the balance transfer game
1. Don’t be late: If you miss a payment during the promotional period and the bank increases your promotional rate to the regular interest rate they win. Your interest can go from 0% to 18.9% or worse in a split second. We always recommend automating your minimum payments, so you’ll never be late.
2. Watch out for new purchases: Balance transfer credit cards only give you a low interest rate on your transferred balances. Any new purchases made with the card, will likely pay the much higher purchase interest rate. If you intend on making new purchases with your credit card, and carry a balance, do it with a low interest rate credit card.
3. Pay down your balance: If you ever want to get out of debt, you have to start paying down your balances. Use the 0% balance transfer period to pay as much of your principle down as possible. Don’t waist it by reducing your monthly payments. keep your monthly payments the same and get rid of your debt. Eventually your low interest period will end, and you want to have the least amount of debt as possible before your rates go back-up.
4. Compare offers: Don’t take the first balance transfer offer you see. Compare credit cards. You’ll want to compare the balance transfer introductory interest rate, the length of the introductory rate and the balance transfer fees (anywhere from 0%-3%). Many companies count on you not having market knowledge, and taking the first offer you see. Be diligent, with balance transfer credit cards, there’s lots of money on the line. So what are balance transfer credit cards? They’re great opportunities for people with existing debt to lower their interest costs, pay down their debt and get organized. If you still have some remaining debt at the end of the introductory period, you can always try to transfer your balance to the next card. Playing that game, called balance surfing, is a tried and true strategy, just make sure you’re organized and take the opportunity to pay down your debts.