Individuals trying to get their finances under control have various ways to do that. For instance, tools like a loan consolidation calculator or balance transfer credit cards may appeal to you.
We’ll talk about balance transfer credit cards in the following article. If you’re trying to get out of debt, this option is worth considering.
What is a Balance Transfer Credit Card?
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A balance transfer credit card functions like a regular credit card, but it comes with one notable perk. If you open an account with that credit card company, you can transfer the existing credit card debt that you have to the card you just opened. You can even transfer balances from multiple other credit card companies to the new one if you’d like.
If you’re looking at a balance transfer credit card because you’re trying to shrink your existing debt, you should look at a few particular features. The duration of the new card’s promotional period should be at the top of that list.
Many balance transfer credit cards entice you to open an account with them because they have a very low-interest rate when you do so. You’re paying a lower interest rate on the debt you just transferred than you were paying with a different credit card company to which you owed money.
Keep in mind that this lower introductory interest rate does not usually last forever. It might last 12 or 18 months in most instances. If you can’t pay off the balance you transferred to the new card during that time, the interest rate on whatever remains might shoot up when that introductory period concludes.
It’s always in your best interest to find a balance transfer credit card with a longer introductory low-interest rate.
Your new card’s interest rate also matters. Often, it’s only worth it to open an account with a balance transfer credit card if it comes with a 0% introductory rate.
Failing that, you at least want to find one with an introductory rate that’s significantly lower than the interest rate you’re paying on your current balances with the credit cards you already have. If the interest rate isn’t more favorable with the new card than what you’re currently paying with your existing ones, opening a new account isn’t worth it.
You should also expect to pay a fee when you open an account with a new balance transfer credit card and move the balance from an existing card over to it. That fee might be as little as $5-10. However, if you’re transferring larger balances from your existing account, that fee could be as much as 3-5% of that balance.
If you’re considering opening an account with a balance transfer credit card and transferring the balances from your existing cards over to it, crunch the numbers to see if that transfer fee is worth it. If it’s not, opening a new account doesn’t benefit you.
It’s also not inconceivable that you’ll find a balance transfer credit card that won’t charge you any fee for a balance transfer. If you can locate one of those, that’s always better than ones that charge fees for that service.
Balance Transfer Credit Cards Can Help You
If you have credit card debt, getting the right balance transfer card can help you get out from under that. You’ll want to look for one that has reasonable balance transfer fees or none at all.
You’ll also want to find one with a 0% introductory interest rate or one with a rate lower than what you’re paying on your existing debt. The last thing to think about is the duration of your new card’s interest rate. A low introductory rate might entice you, but take note of when it changes. Ideally, you’ll want to pay off your existing debt before that happens.