Looking for a Balance Transfer Credit Card? Here’s 5 Things to Know

If you're looking for a balance transfer credit card, here are some things to keep in mind.

If you have found yourself dealing with high amounts of credit card debt, you might be feeling a little trapped. At times, it can seem like you are never going to get to the other side and become debt-free again. However, there are tools to use that can help you with your goals. One of the best ones is a balance transfer credit card.

A balance transfer credit card is exactly what it sounds like. It allows you to transfer a balance from one card to another. Typically this is done so that you can have a lower interest rate on your balance or take advantage of a short-term 0% introductory offer on transferred balances. However, before you make the decision to use a balance transfer credit card, consider these five facets.

1. Yes, Balance Transfers Can Save You Money

In fact, one of the biggest reasons why you should consider a balance transfer credit card is because of the money you could save. The higher your balance, the more money that could end up back in your pocket. To help give you a visual, let’s assume that you have a credit card balance of $10,000 and your current card has an annual percentage rate (APR) of 14%.

Now let’s assume that you make the decision to move your balance to a Chase Slate card (see full review here). With this card you would avoid paying a balance transfer fee, so long as you transfer that balance in the first 60 days of opening the account. (After that, you’ll pay a 5% balance transfer fee.) Plus, you would receive an introductory 0% APR for the first 15 months. If you were to make a $200 payment each month and received a 13.24% go-to APR, the lowest end of the Slate’s 13.24% to 23.24% variable APR range, you would be saving $3,200 in interest by the time the balance was paid off.

2. Transferring a Balance Isn’t the Same as Repaying Your Debt

Balance transfers can be extremely useful, but, keep in mind, they are not a replacement for repayment. When you complete a balance transfer, you are paying off one credit card with another. The only way that this works in your favor is if you repay the entire debt at a lower interest rate. Once you complete your balance transfer, come up with a plan to start eliminating the debt altogether. If possible, do it before that introductory 0% APR is over. If not, get your balance as low as possible before the go-to rate kicks in.

3. Be Aware of the Fee

The Chase Slate card is an exception when it comes to fees. Most other balance transfer credit cards will charge a fee of 2% to 3% when you go to transfer a balance, but some are as high as 5%. Before you make the decision to use a balance transfer card, you should crunch the numbers to make sure your savings on interest will justify the fee. You can learn more about the best balance transfer credit cards here.

4. Your Credit Score Might Drop … Briefly

Every time you apply for a new credit card, the issuer will run a credit pull — which generates a hard inquiry on your credit report. They do this to make sure you are a suitable borrower for the product you are applying for. Because of this inquiry, your credit score could decrease by a small amount. This should be a short-lived effect, however, so long as you don’t add to your debt. In fact, in the long-term, the new credit card could help your credit score, since that new credit limit will likely bolster your credit utilization — how much credit you have versus your total available credit. (Of course, this is predicated on you not running balances back up on both cards.)

5. Not Everyone Will Qualify for a Balance Transfer Credit Card

Even though you might want to complete a balance transfer, and it might be the best thing for your debt repayment plan, not everyone will be eligible. The best offers, in fact, will require applicants to have a good or excellent credit score to be approved. You can see where your credit stands by viewing two of your credit scores, updated every 14 days, for free on Credit.com. And, if you’re looking to improve your standing, you can find some ways to give your credit score a jumpstart in the new year here.

At publishing time, the Chase Slate credit card is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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The post Looking for a Balance Transfer Credit Card? Here’s 5 Things to Know appeared first on Credit.com.

The Golden Rules of a Balance-Transfer Credit Card

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If you’re saddled with debt and looking for ways to pay it off, a balance-transfer credit card may be able to help. These useful pieces of plastic, which typically grant cardholders a promotional period of interest-fee financing for up to 15 months, are designed with people like you in mind: those who want to get out of debt.

So how do they work? In theory, customers transfer their balance from an interest-bearing card to the new one, then work to pay off their debt before the promotional APR ends (and the new one kicks in). Of course, not everyone’s a pro at this, and if you’re not careful, you can damage your credit and still be stuck in debt. To help you avoid such a poor-credit mishap, we’ve compiled a list of golden rules for using your balance-transfer card wisely.

Don’t Add to Your Balance

There’s a reason you got into debt in the first place, so the last thing you want to do is make it worse. Remember, if you add more debt to your already hefty balance, you’ll have a tougher time paying it off before the promotional interest-free period ends, and your credit could suffer as a result, because high levels of debt are a red flag to lenders. (You can see where your finances stand by viewing two of your free credit scores on Credit.com.)

Another reason to leave that balance alone once you transfer it to the new card? Many people find it easier to budget for fixed costs than moving targets.

Find a Card Without a Balance-Transfer Fee

Once upon a time, creditors waived fees for transferring a balance from one card to another. Nowadays, many creditors tack on 3% to 5% interest just for doing the job. If you’re already in debt, you don’t want to worsen the burden. Research all the balance-transfer cards out there, and look for a card that doesn’t charge fees just for making a transfer. Trust us, your wallet (and future self) will thank you.

If You Can’t Ditch the Fee, Try to Save on Interest

Sometimes, despite all your research, you end up applying for a card that charges a fee to transfer a balance. That’s OK. But while you’re working to pay off your debt, it’s a good idea to do what you can to save some money on interest. How? By paying down your balance as much as you can — at least before the promotional period ends and the newer (higher) APR comes into play. Remember, the greater your interest, the quicker your debt is going to pile up. (Consider using this credit card payoff calculator tool to find out how long it might take you to relieve yourself of that debt.)

Pay it Off Before the Promotion Ends

As we’ve mentioned several times, it’s imperative that you work to pay off your card before the promotional period ends, lest you wind up saddled with higher interest — and more debt, if you can’t pay it off. For this reason alone, you may want to choose a card with 21 months of 0% APR, such as the Citi Simplicity, whose review you can read here. As an added incentive to apply for the card, Citi Simplicity doesn’t charge any late fees. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.)

Read the Fine Print 

As with any credit card you’re applying for, fees and policies are subject to change at a moment’s notice, so you’ll want to make sure that the card you choose has the best plans for you and your budget. Some balance-transfer cards charge penalty rates for late payments, taking away the introductory rate entirely when you make a late payment. (Some of those eye-popping penalties can climb as high as 30%.) Finally, it helps to know what your credit card’s APR will be once the interest-free financing period ends. You don’t want to get hit with sticker shock when you carry a balance on a card with a 23.99% APR.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

At publishing time, the Citi Simplicity card is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

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The post The Golden Rules of a Balance-Transfer Credit Card appeared first on Credit.com.

Should I Get a Balance Transfer Credit Card?

get-a-balance-transfer

If you have a large, outstanding balance on a credit card that carries a high interest rate, transferring that balance to a card with a lower interest rate might make financial sense for you.

“Transferring a balance from one card to another with a lower interest rate or fee structure can save you money,” Rod Griffin, director of public education for credit bureau Experian, said in an email. “Lower monthly payments can also help you manage the existing debt and pay off the debt more quickly.”

Making the Most of a Balance Transfer Card

One of the most common reasons people get a balance transfer card, according to Griffin, is to “reduce interest rates or fees” to help get their debts paid off sooner. But this only works if you take action to pay off the card before the lower interest rate expires.

If you’re considering a balance transfer card, it’s important to read the terms and conditions carefully. Is there a transfer fee that could potentially negate any savings you might see? Nearly all credit cards with 0% APR promotional financing offers impose a 3% fee on the amount transferred. Does the 0% interest rate expire in six months? One year? Whatever the time frame, it’s a good idea to take a close look at your finances and figure out how much you can put toward paying off your credit card debt during this time.

While you’re focused on paying down your balance, Griffin also advised practicing self-control by putting your old card away so you aren’t tempted to use it to make more charges.

“People get into trouble when they realize they have a card with no balance and begin using it to make additional charges,” Griffin said. “If you lack discipline to not use the old card, you can end up with more debt, not less.”

Same goes for the new card. You’ll want to be smart about your spending and payments so you don’t rack up more debt.

“Missing payments or making purchases could cause interest rates or fees to jump up dramatically and end up costing you more,” Griffin said.

Choosing a Card

The low-interest rates that a balance transfer credit card can offer may be very tempting, but it’s important to do your research. You can start by comparing the best balance transfer cards in America.

“Look for cards with lower-interest rates,” Griffin advised. “Understand the consequences of using the card as well. Do you have to pay a higher interest rate on new charges? Does the interest rate on the transfer expire after a period of time? If it is a ‘teaser’ rate, you need to pay off the balance before it expires or you could end up paying more, not less, in the long run.”

Before you choose any cards, it can help to know where your credit stands, as this will affect what terms and conditions you qualify for. You can see two of your credit scores for free, updated each month, on Credit.com.

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