In a nutshell, a balance transfer is a process that allows you to switch your debt from a loan or credit card to another credit card.
You will still pay your debt; the only difference is that a balance transfer allows you to combine several payments on one card.
Assuming the balance is transferred to a lower account, this will reduce the amount of interest. Before applying for a balance transfer, it is essential first to understand the process; otherwise, it might backfire and cost you lots of money in the end.
How Does It Work?
Completing a balance transfer is pretty simple; it only takes a few steps to complete. You can either do it online or over the phone. Note, however, that the amount you can transfer will be restricted to your card’s credit limit.
Be sure to keep making timely payments to your accounts during this period; otherwise, once you end up with a late payment, you incur late fees plus other penalties.
When to Consider a Balance Transfer
A balance transfer is the best option in case you have a debt with a high-interest rate, and you want to move it to a lower interest rate. Also, if you’re going to juggle paying different debts at the same time, a balance transfer can help you combine debts for easy tracking.
Furthermore, you can quickly get a good promotional offer on your balance transfer credit card. For instance, a 0% APR can help you pay your debt fast by reducing the amount you pay in interest.
Disadvantages of Using a Balance Transfer
Balance transfers also come with their setbacks, such as credit cards that charge a balance transfer fee, which is usually 3% or 5% of the total amount you transfer. Before you make any decision, it is important to weigh how much you will save on interest versus the amount you will pay in fees. This is one way to figure out if a balance transfer will make sense.
How to Make a Balance Transfer Work for You
If you are considering using a balance transfer, here are a few tips to make it work for you.
Don’t just sign up; carefully read the terms and conditions. Confirm whether there is a balance transfer fee, introductory interest rate, and how long it will last. How about the time frame you are given to complete the transfer fee? Also, confirm how much you can transfer.
Mark essential days on your calendar; this is because individual credit cards offer 0% interest on balances transferred within a specific period. This will also help you keep track of your payments.
Have a plan for paying off the debt. Come up with a workable plan to pay off your debt. Be sure to pay your transferred balance before the end of the intro period. Doing so will save you paying interest on the remaining balance.
Balance transfers also come in handy when you want to consolidate debts to save money on interest. However, to make the best of it, be sure to carefully read and understand the terms and conditions for paying off your debt.