Balance transfers are another option you have when it comes to do-it-yourself debt relief. A balance transfer allows you to take debts from your high interest credit cards and transfer them to a card with a lower interest rate. As with any debt relief option, the goals of a balance transfer is to make your monthly payments more manageable and/or slow down the speed at which your debts accumulate interest.
A balance transfer isn’t as simple as just moving the debt from one account over to another. If you’re considering doing a balance transfer give us a call at 1-800-990-9838. A certified credit counselor can assess your situation and provide answers on how to do a balance transfer successfully to help you avoid the common pitfalls many consumers encounter with this kind of financial transaction.
How does a balance transfer work?
Put simply, a balance transfer means you use a low interest rate credit card to pay off one or more, high interest rate credit cards. You move the balance from your high interest rate card(s) to another card with a lower interest rate. By getting a lower APR on your debt, you can slow down how fast your debt builds up interest, as well as reduce your monthly payments if the monthly interest charged is less than what you had on your original credit cards.
Let’s say you have a high interest credit card with 19% APR, a $10,000 balance, and a monthly schedule of 2% of your balance. Making minimum payments, you’ll pay off the debt in 721 months (over 6 decades from now) and pay $35,897.08 in interest with your minimum payments starting around $200.
You transfer this balance to a credit card that offers 0% interest on balance transfers for 18 months, after which the APR is 13%. For that first 18 months, all the payments you make will go entirely to paying down the balance (principal), rather than covering the interest and only paying down a small portion of the principal. If you make $150 payments for 18 months, your balance will be reduced to $7,300 when the 13% interest begins. Paying the same 2% monthly rate, you pay off your debt completely in 320 months with a total of $8,076.96 paid in interest. You save a few decades of time and over $25,000 paid in interest.
Beware of balance transfer APR and fees
As you see from the example, some credit cards are specially designed to be more attractive to consumers wanting to do balance transfers by offering attractive balance transfer APR. In contrast, other credit cards may actually charge you a higher interest rate on balance transfers than the standard APR you see on your regular purchases. You may also be assessed additional fees for balance transfers as well.
It’s vital to read the credit card contract for the card you want to use for your balance transfer carefully to know exactly what you’ll be charged and when. If the card has an introductory balance transfer interest rate, take note of when it applies and have a clear plan for how much you’re going to pay during that time. Otherwise, you may do a balance transfer to provide debt relief in your monthly finances, only to end up making higher payments on the new card.
What can I transfer?
As mentioned above, you can transfer more than one credit card debt when you want to do a balance transfer. If you have multiple high interest rate credit cards, you can move all of them to one low interest rate credit card. This not only makes the payments lower, but it also makes your debt more manageable because you only have to make one payment each month. Credit card debt isn’t the only kind of debt that works for balance transfers either. You can transfer your car loan or loans for other large purchases like new appliances.
What makes a balance transfer a viable option for debt relief?
A balance transfer is only a viable option for debt relief if you can qualify for a credit card with the right interest rate. If you have bad credit or penalties on your credit report, you may not be able to qualify for a credit card that will provide any real benefit from a balance transfer. If the interest rate isn’t low enough, you may end up making the situation with your debt worse. Call us at 1-800-990-9838 to speak with a certified credit counselor. Your counselor can review your credit report for free and discuss your various options for debt relief.