What’s a Balance Transfer Credit Card?
Imagine moving your credit card debt from one card to another card with lower interest. That’s what a balance transfer credit card does. It’s a type of credit card that lets you transfer debt from one or more credit cards to a new card, usually with a lower interest rate.
How Do They Work?
Balance transfer cards often come with a promotional period where you pay little or no interest. This period can last anywhere from 6 to 18 months. During this time, you can pay off your debt without the extra burden of high interest.
Why Use a Balance Transfer Card?
Save on Interest: The biggest reason to use these cards is to save money on interest. If your current card has a high interest rate, transferring the balance can reduce the amount you pay in interest.
Consolidate Debt: If you have balances on multiple cards, it can be tough to keep track. Transferring them to one card can make it easier to manage.
Pay Off Debt Faster: With lower interest rates, more of your payment goes toward the principal balance, not interest. This means you can pay off your debt quicker.
Things to Consider Before Transferring a Balance
Balance Transfer Fees: Most cards charge a fee for transferring a balance. This is usually a percentage of the amount transferred. Make sure the fee doesn’t outweigh the interest savings.
Interest Rates After the Promotion: What happens when the promotional period ends? Check the regular interest rate of the card. If it’s high, you could end up paying more in the long run.
Credit Score Impact: Applying for a new card can affect your credit score. Also, if you max out your balance transfer card, it could hurt your score.
How to Choose a Balance Transfer Card
Look for a Long Promotional Period: The longer the low-interest period, the more time you have to pay off your debt without high interest.
Low Balance Transfer Fees: Some cards offer low or even no fees for transferring a balance. Shop around for the best deal.
Regular Interest Rates: Check the interest rate after the promotional period. Ideally, it should be lower than what you’re currently paying.
Using Your Balance Transfer Card Wisely
Don’t Make New Purchases: It’s tempting to use your new card for purchases, but try to avoid it. Focus on paying off your transferred balance.
Pay More Than the Minimum: To make the most of the low-interest period, try to pay more than the minimum due each month.
Create a Payoff Plan: Set a goal for paying off your balance before the promotional period ends. This helps you avoid high interest rates later.
The Bottom Line
Balance transfer credit cards can be a smart way to handle credit card debt. They offer a chance to pay down your balance with lower interest. Just be sure to read the fine print, understand the fees, and have a plan for paying off the debt.
