How To Pay Debt With Balance Transfer
TABLE OF CONTENTS
- What Is a Balance Transfer
- How Does It Work?
- Is a Balance Transfer the Best Way to Pay Off Debt?
- An Excellent Balance Transfer Example
- Making an application for a Balance Transfer Card
- Alternatives to Using a Balance Transfer to Pay Off Debt
What Is a Balance Transfer?
Transferring a credit card balance from one card to another is known as a balance transfer. It can be an excellent strategy to pay off high-interest credit card debt and save money on interest. However, there are a few hazards to be aware of before making the leap.
- Transferring your credit card balance from one card to another can help you save money and pay off your debt faster.
- During promotional periods, certain credit cards charge low or even no interest on transferred balances.
- Balance transfer fees are also charged by some cards, which can be costly upfront.
How Balance Transfers Work
Assume you’ve racked up a sizable debt on a credit card with a high annual percentage rate (APR). If you move the balance to a new card with a lower interest rate, a more significant amount of your future payments will go toward principal rather than interest. This will allow you to pay off your debt more rapidly, perhaps saving you a lot of money in the long term.
Applying for a bill transfer credit card is the first step. You can start transferring all or part of your amount from your old card after you’ve been accepted. There are various options for doing so. One option is to pay off the old debt with a check provided by your new credit card issuer. You may also be able to start the transfer over the phone or online by providing your new card provider with your old card’s account number and other details, as well as the amount of debt you wish to pay off and move to your new card.
A balance transfer takes roughly two weeks on average. Before your balance transfers to the new card, you must make any payments you owe to the card company that presently holds your amount.
Is a Balance Transfer the Best Way to Pay Off Debt?
If you have a strong credit score, several credit card issuers will offer cards with meager interest rates on balance transfers. Some provide introductory interest rates of 0% for a set length of time, usually six to 18 months.
While this can save you money if you meet the requirements, there are a few things to keep in mind while shopping for a balance transfer card.
The first is the cost of the transfer. Not all credit cards have these, but those that do usually have fees ranging from 3% to 5%. So, if you’re transferring a $5,000 amount, it may cost you $150 to $250 just to get started.
The second point to consider is what happens to the card’s interest rate when the promotional period (if there is one) has ended. If you haven’t paid off your balance before then, you may be charged a greater interest rate than your previous card.
Even so, if you can discover a new credit card with a low or no balance transfer charge, a credit limit large enough to cover your old load, and an introductory period long enough to pay off that balance before the rate jumps, a balance transfer can be a wise choice.
An Example of a Good Balance Transfer
Suppose you have a $3,000 credit card balance with a 15% interest rate. It would take 14 months to pay off the total plus $271 in interest if you paid $250 every month. However, if you transferred the balance to a 0% interest card with a 3% transfer charge and made the duplicate payments, the debt would be paid off in 13 months (including the $90 transfer charge), saving you $181.
You could lose your introductory interest rate on any transferred amounts if you make a single late or inadequate payment.
Applying for a Balance Transfer Card
Before you apply for a new credit card, make sure you are familiar with all of the terms, which the credit card business is obligated to post on its website. This contains the interest rates for balance transfers and new purchases, as well as the duration of any promotional rates.
If you have any doubts, contact the card’s issuing business. Before you contact, know your FICO score and be prepared to discuss any unfavorable items on your credit report. The customer service agent will be able to tell you about the offers that are available to you based on this information.
Atlanta Credit Experts produces a list of the top credit consultation ideas and tricks that is updated on a regular basis.
Alternatives to PayOff Debt With Balance Transfers
A balance transfer is one option for paying off debt, but it’s not the only one.
One option is to simply set aside additional money each month to pay down your credit card debt. If you have numerous credit cards, pay the minimum balance on each one and then apply any remaining funds to the card with the highest interest rate. Move on to the next most expensive card once that one is paid off. The debt avalanche method is a term used to describe this approach.
Applying for a debt consolidation loan through your bank is another option. A debt consolidation loan is a sort of personal loan with interest rates typically lower than those charged by credit cards. The loan can be used to pay off credit cards and other debts. Atlanta Credits presents a list of the best debt consolidation loans that are updated on a regular basis.
Consider seeking debt relief if you’re having problems making even the minimal payments on your card (or cards). This is contacting your creditors and attempting to negotiate new, more advantageous conditions, such as a lower interest rate or additional repayment time. You have the option of negotiating on your own or enlisting the help of a professional debt reduction firm. Be warned that con artists appear as reputable debt repair organizations, so thoroughly investigate any organization you’re contemplating.
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