While we’re on the credit-card debt pay-off tip lately, let’s take a deeper dive into Balance Transfers!
Specifically: how they work and what to look for if you’re considering a balance transfer in order to pay down credit card debt.
How They Work:
A Balance Transfer is an offer some credit cards use in order to entice new users. It typically allows consumers (usually those with a credit score of 690 or higher) to transfer their debt from another credit card(s) at a lower, or even 0%, interest rate for a specific amount of time, at a specific fee. Rates then rise again once the promotional time has expired. (Note: those with not-so-great-credit can do Balance Transfers as well but may not get the 0% interest rate, or the length of time will be shorter.)
Note: you can usually move most types of credit card debts (retail store card to regular credit card) across most companies (VISA to Discover) but you usually cannot move balances within the same company (from one card in the Chase family to another Chase card).
Since the average credit card interest rate is currently at over 18%, this can be an excellent option to save on the interest accumulating on their debt.
What They Cost:
The fees involved with balance transfers are sometimes set amounts and sometimes 3%-5% of the balance being transferred over. Be aware of any additional fees as well, like an annual fee. The annual fee could wipe out any savings made from doing the transfer.
You’ll also want to make sure the credit limit of the new card is high enough to absorb the balance you intend to transfer. Furthermore, 0% balance transfer fee is best, although can be hard to find.
Check out NerdWallet for a list of the best balance transfer offers right now.
Read the fine print to make sure the 0% APR on the new card applies to Balance Transfers as well. It won’t do you any good to pay to move your debt and end up with 0% interest applying to only new purchases. Be informed as to what your interest rate will be on the new card once the 0% period ends; compare that rate to the card(s) holding the debt now. Most importantly, be aware that any missed payments once you do the balance transfer may void the 0% introductory offer right off the bat.
Caution: Even with the use of a balance transfer, if you take your old financial beliefs with you to your new credit card, the behavior likely will not change.
Make a game-plan for paying off debt, such as calculating your debt and the timeframe of the promotional period so that you can pay off your debt at the 0% rate and don’t end up paying the new interest rate on old debt. Dig deep and figure out why the purchases went on a credit card in the first place and/or why you were unable to pay off the debt in full. Work to build some new habits that you’re able to stick to, before you start moving your debts around.
Unlocking Abundance 