As you may know, if you carry balances on any of your credit cards, you’re accumulating interest every month. Not only does that add to your overall amount owed, but it also makes it harder to chip away at your debt. If that sounds accurate to your current situation, then a balance transfer may be a good choice.
How do balance transfers work?
Balance transfers allow you to take the amount owed on your higher interest credit card and move it to one with a lower interest rate for an introductory period, usually about 12 months. This lower interest rate allows you to save money on interest over time while putting more toward your principal amount. You can also benefit from consolidating several balances into one, leaving you with fewer due dates and payments to keep track of.
What to consider when making a balance transfer
The potential goal of making a balance transfer may be to save money instead of spending more. Here are a few things to consider when it comes to making a balance transfer so you can meet your unique goals:
- Pay attention to different APRs.
- Know the terms of the balance transfer.
- Look into cards that waive the balance transfer fee.
- Continue paying the balance on your other cards until the transfer goes through.
- Be cautious when charging new purchases to your balance transfer card in case a zero percent intro APR doesn't apply to purchases.
- Remember to make your monthly payments on time.
Possible balance transfer pros
You can consolidate your payments.
- With a balance transfer card, you may be able to combine multiple credit card balances by transferring them. Once the balances are transferred, you can focus on one payment with one due date, making it easier to manage your finances.
Pay down debt faster
- By consolidating multiple credit card balances to one you can focus on paying off your debt faster and with less effort.
You can transfer your balance to a card with different terms.
- If your current credit card consists of high fees, you may be looking for a card with better terms.
Possible balance transfer cons
You may have to pay fees
- Many balance transfers may charge a fee, which is typically three to five percent of the amount you're transferring, with a minimum of five to ten dollars. Depending on how much you transfer, you may end up paying a hefty fee just to complete the transaction. In addition to the balance transfer fee, the new credit card could also carry an annual fee.
Introductory offers
- Balance transfer offers don’t last forever. After your introductory APR period ends, you’ll start paying your credit card’s regular variable APR on any remaining balance. Make sure to review the rules carefully to avoid any pitfalls.
Is a balance transfer right for me?
Balance transfers are best for those with a lot of high-interest debt to pay down. By moving debts to a new credit card with a lower interest rate, you get the chance to save money on interest and pay down the balance at a much faster pace.
That said, some people take out balance transfer credit cards with good intentions but find themselves racking up new balances on their credit cards (even as they work to pay their old balances off). If you’re not ready to commit to paying off your credit card debt without taking on new debt, a balance transfer credit card might not be the right option for you. At the end of the day, your success with a balance transfer credit card depends largely on how you use it and how prepared you are for the debt repayment process. Now that you can successfully answer the question “what is a balance transfer?" the next step is deciding if this is a good option for you.