A balance transfer means moving your entire debt or just a part of it from one credit card account to another. It usually costs 2-4% of the balance you’re transferring, which is added to your outstanding debt.
Balance transfers work by applying for a new account with a low or 0% introductory APR (annual percentage rate), doing a balance transfer, and paying off the balance. You can easily contact your new credit card issuer if you’re unsure if you can or how to do a balance transfer.
Typically, you only need the following details, i.e., card number, credit card issuer, and the balance you want to transfer. You can do this online or arrange one with the new credit card provider.
Apart from this convenience, other perks come with doing a balance transfer. Check them out here.
Lower Interest Rates
Many financial institutions, such as credit card issuers and credit unions, offer low-interest balance transfer specials. Taking advantage of these can help you pay down a high-interest balance faster.
Let’s say you have a high-interest debt on your credit card. By transferring this balance to another account, you can lower what you’re paying in interest, meaning you can tackle more of your outstanding debt each month.
Remember that the majority of these promo rates expire. Hence, be sure to be aware of when they’ll be over. They usually last for two or three months. After this period, your account reverts to a higher rate for the outstanding balance.
It’s recommended to read the fine print and shop around to get the best overall deal. Don’t hesitate to raise questions about the length of a special promotion, terms, and their new rate once it expires. After all, you don’t want a low-interest rate card yet with exorbitant fees.
Get Rid of Debt Faster
As mentioned, transferring balances have lower to no interest fees under fixed repayment terms of one, two, or three years. It gives you extra savings on interest charges on revolving balances, which you can use to pay off credit card balances.
However, if your goal is getting out of debt faster, be sure not to get into more debt. Don’t charge up the balances of those credit cards you paid off through a balance transfer. Otherwise, it defeats its purpose and leads to a debt spiral.
Debt Consolidation
Balance transfers can also enable you to consolidate your debt. It allows you to roll all your existing repayments, such as loan payments and credit card bills, into a single new loan. With this, you can streamline all your loans.
Debt consolidation with lending options like CreditNinja loans can also give you more favorable payoff terms. Combining all your loans into one can lower interest rates, monthly payments, or both. It also has fixed monthly payments and a fixed repayment schedule, putting you on a faster track to a total payoff.
When consolidating multiple credit card payments, ensure that the new account has enough or a higher credit limit to handle all your balance transfers. Exceeding a credit limit has a lot of disadvantages, including over-limit fees, higher interest, and damage to your credit.
Avail Better Terms
Since you’re opening a new credit card with a balance transfer, it can also be a chance to find an issuer that provides better terms. It’s especially true if your current credit card company has a high-interest rate and expensive fees yet with a shorter credit limit and grace period.
In addition to a high credit limit to handle all your balance transfers, find a new credit card that truly fits your needs. Apart from credit cards, other options enable you to balance transfers. Take the CreditNinja balance transfer loan, for example. They also have better terms and other perks that are usually tailored to their clients.
Boost Credit Score
A balance transfer can’t directly raise your credit score by itself. However, it can bring about some changes in your credit report, which may improve your score. A balance transfer lowers your credit utilization and the number of your accounts with balances.
Having all your loans consolidated can lower your credit utilization rate. Since it shows you’re using less of your available credit, your score will be better. Moreover, from a credit-scoring perspective, rolling all debts into one larger loan is better than having several accounts with balances.
Final Thoughts
A balance transfer isn’t a one-size-fits-all solution to debt. Regardless of how attractive the offer is, it’s the right fit for everyone. It only works for those who qualify for a new balance transfer credit card, typically with a healthy credit rating.
But don’t lose hope just yet. Other financing options can help you crunch the numbers. Just ensure that this alternative has good financial sense and that you have a debt-elimination strategy before applying.
