Paying off debt is a goal most people strive for. No matter if you have a lot or a little, debt can be a thorn in the side, and finding the right way to pay it off can save you money and hassle in the long run. One strategy many people employ is using a balance transfer credit card. Simply speaking, a balance transfer credit card is a card that offers a low or 0% interest rate for all balance transfers during a specific promotional period. If you have a credit card balance with a high interest rate, you may barely be paying the minimums each month, making it close to impossible to reach the finish line of total repayment.
Transferring that balance to a low or no-interest card, if done correctly, can save you hundreds in interest fees and allow you to pay the balance in full. Depending on the terms of the card, it is possible get an interest-free transfer of anywhere from a few months up to two years. Read on for tips on how best to take advantage of this strategy while avoiding the costly mistakes that oftentimes come with balance transfers.
Read the Fine Print
With a variety of cards from which to choose, make sure the card you select has everything you need. When considering a balance transfer, answer the following questions before making a final decision on a new balance transfer card:
- How much credit do I need? If you do not qualify for credit high enough to cover the entire balance that you wish to transfer, determine how much money you will save by only transferring a partial amount, and whether or not it is worth it.
- What payment can I afford? A 0% interest rate will mean that any payment will be lower than what you are currently paying. However, if the promotional period is short, you may find yourself paying a higher payment than your original one.
- What is the transfer fee? Some cards will charge you a fee to transfer the balance and it will slightly increase the amount of your debt, but it will most likely still be less than the interest you would pay without the transfer.
- What are the penalties for paying late or missing a payment? Many cards have strict penalties for defaulting on the repayment agreement, and you can end up paying more than what you would have paid had you left the balance where it was. Be clear on every penalty before agreeing to the balance transfer.
- Will I be using the card for a balance transfer only? If you have plans to continue using the card once the balance transfer amount is paid in full, make sure you are happy with the standard interest rate and all other terms that apply to the card.
Convenient and Quick
Once you have been approved, the balance transfer process is relatively simply. You can arrange the transfer online or send a check in the mail. Once your old account has received the payment from the new account, the balance transfer is complete and you will now be responsible for paying the new bill.
Have a Plan in Place
Before you follow through with the balance transfer, have a plan in place to address each aspect of your financial decision. First, determine how long you have to pay off the debt and what the interest rate will revert to once the promotional period is over. You don’t want to end up paying an even higher rate than the card from which the debt was transferred. While you may save money initially from a temporary low-to-no interest plan, a higher secondary interest rate may charge back everything you saved.
Second, realize the negative impact of making purchases on the balance transfer card. Most balance transfer offers apply only to the original transferred balance and you have a limited number of days, typically 30 or 60, before the promotional offer expires. While you may want to direct them in which balance to pay first, the credit card company can apply your payment how they choose, and are likely to choose the option that benefits the company rather than the customer, meaning you will increase the overall timeframe it takes to pay off your debt.
Reap the Biggest Rewards
If you want to experience the best benefits a balance transfer credit card has to offer while avoiding the pitfalls, be prepared and have a plan. It is up to you to do the research, find the right card, make a repayment plan, and stick to it. Don’t let the fine print or a surprise interest rate stop you from paying off your debt. The balance transfer option can offer you significant savings if used correctly.