Balance transfers can be a great way to pay off your debt at a lower interest rate. But, before you apply for a balance transfer credit card, make sure you understand how balance transfers work.
The purpose of a Balance Transfer
A credit card balance transfer is a form of credit card transaction where you pay off the balance of a credit card with another credit card, usually with a credit card from another credit card company. When applying for the credit card, you can enter the details of the balance that you want to transfer including the account number and the transfer amount.
If your application is approved and your credit limit is high enough, your new credit card company will charge the process of transferring the balance. You may also be able to balance over the phone or online after your credit card account has already been established.
One of the best reasons for balancing is to take advantage of a lower interest rate. It is not a good idea, however, to transfer credit card balances just to avoid paying your credit card bill. That can get expensive and lead to a credit card debt, especially if you make a habit of it.
Important features of a Credit Card Balance Transfer
The credit card you choose should allow balance transfers. Look through the terms of the credit card, if it gives a APR and the fee for balance transfers, then you can use this to balance it. If these costs are not included, it is safe to assume you cannot transfer a balance to that credit card. You can call the customer service card to confirm if you are particularly interested in that particular credit card.
There are two APRs to consider with a balance transfer credit cards: the promotion introductory rate and the regular rate that will apply after the introductory period has ended. Compare the post-promotion interest on the interest on your current credit card. Make sure you understand what you need to do to qualify for promotional interest. Finally, make sure you know the balance transfer fee. This fee is automatically added when you transfer the balance. The lower the costs, the better.
Look for savings
Not only does the balance transfer credit card play in whether you do a balance transfer, you must also know that you are actually saving money by doing the balance transfer. Using a balance transfer calculator can help you get this out easily. Make sure you consider the balance transfer fee and an annual fee if you want to weigh the costs of transferring the balance. You can maximize your balance transfer savings by reimbursing the full transfer during the promotional period.
Credit Card Balance Transfers can affect your credit score
Transferring credit card balances can have an impact on your credit score. That’s because high credit card balances indicate you can have more debts than you can handle. Before you do a credit card balance transfer, consider how it can affect your credit score. Remember, however, that your credit score can rebound if you pay off the balance.
Make sure the Balance Transfer is Successful
A balance transfer is not as fast as making a credit card purchase. It can take a few days to several weeks for the transfer to be successful. Continue making monthly payments on your old credit card to receive an account statement with a $ 0 balance.
Do not ignore your invoices on the assumption that your balance has been transferred. If there is an error with the balance transfer and ignore your bills from your old credit card, you may miss a payment and end up with a late fee and payment arrears items on your credit report.
The repayment of a Balance Transfer
If you transferred the balance to a credit card with an introductory low interest rate, it is best to repay the balance within the promotional period. That way you can save the most money on interest charges. Divide the total balance by the number of months in the promotional period to find out the monthly payment you need to pay off the balance and avoid interest completely.
It may take you longer to pay off a balance transfer if your credit card has a different type of balance, as a balance purchase if the balance transfer has a higher interest rate. Credit card issuers currently apply above the minimum payment on the balance sheet with the lowest interest rate until that balance is fully repaid. Until the lower balance rate is paid off, you usually only pay interest on the balance transfer.