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).
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