If you’re like many Americans right now and you’re having a hard time with high credit card balances, consolidating your balances by taking advantage of a balance transfer offer may be a good way to manage this debt. But what exactly is a balance transfer? The next section will help us answer that question.
What is a credit card balance transfer?
In its simplest form, a balance transfer is just what is sounds. It’s the process of transferring the balance from one credit card to another. Ideally, performing this transaction will have a financial benefit. For example, a good reason to do a balance transfer is to move a balance from a high-interest rate card to one that has a lower interest. Making this kind of transfer should enable you to pay this debt faster since more of your payments will go to principal and less of it will go to interest charges.
Another good reason to perform a balance transfer may be to consolidate debt from multiple credit card accounts into one. Doing the transfer, for this reason, will simplify the management of payments. Instead of having to send multiple payments, you will need to make only one.
Under normal circumstances, a credit card company will not allow you to pay your credit card bill with another credit card. This is where a balance transfer check comes in.
Not all credit card companies do this, but occasionally some will send you checks in the mail. With these checks, instead of a balance being deducted from your checking account, it will increase the balance on your card. These checks can be used for any purpose, but they are commonly used to pay for other credit cards.
A few other facts about these balance transfer offers:
- To get these offers, credit card companies require an outstanding credit history
- In some cases, the offers will come with an extremely low-interest rate and in some cases even zero
- Even for zero-interest offers, there is often a balance transfer fee. It is normally in the range of 2 to 4% of the balance being transferred.
How can you perform a balance transfer?
Now that we understand what a balance transfer is. Let’s see how we can do one. As we mentioned before, sometimes you will receive balance transfer checks from some of your credit card companies and you can use them just like any other check to pay for any expense including paying other credit card balances.
But what if you don’t receive these checks? You can apply for them and see if they will extend the offer to you. Take note that these balance transfer offers are often limited only to the first few months you get a credit card and they disappear after a while. There are a few companies such as Discover and Citibank that may make these offers for extended periods of time.
What you should do after you do a balance transfer?
Once the balance is transferred to the other credit card you should ensure that at least the minimum payments are made to keep the account in good standing. Additionally, keep track of when the low APR offer expires. If you continue to have a balance once the low APR offer expires, the interest charges will be much higher when the normal interest rate kick in. This low APR introductory period may be anywhere from 6 to 24 months. It is highly recommended to have a plan in place to pay off the balance completely before the introductory period expires. Otherwise, you may find yourself paying thousands of dollars in interest.
Is a balance transfer a good idea?
In many instances, taking advantage of a credit card balance transfer can be a great idea. There are only a few caveats to keep in mind.
Not all balance transfers are created equal. Some carry an interest rate as high as a normal credit card. Think long and hard before using a balance transfer that will result in higher interest payments after you perform the transfer.
Similarly, the transfer rate can vary depending on the credit card issuer. Some as low as 2% and as high as 5%.
Consider all the other terms for the offer such as the length of the introductory offer and the credit limit. In some cases, the overall credit limit of the credit card and the amount that can be used as a balance transfer may be different.
If you have high balances in your credit cards and you find yourself just paying the minimum, you should consider other alternatives such as balance transfer, debt consolidation, or debt settlement. Find out what option is right for you. We can help guide you through the various alternatives. Give us a call today at (800) 558-2718.