Credit Card Balance Transfer Basics

by Leon on September 5, 2014

credit card balance transfersThere’s a lot to be gained from transferring the balance of one credit card to another. For one thing, you could end up saving a significant amount of money if the interest rate of the card your transferring debt to is much lower than the one you’re transferring from. And you’ll probably be glad to have just one payment instead of two. Plus, if you have a little problem with spending on credit, transferring a balance will allow you to close at least one account, alleviating the temptation to spend more than you can reasonably afford to pay. But if you want to gain the greatest possible benefits from credit card balance transfers, there are a few things you need to know going into the process. Here are some basics to ensure that your credit card balance transfers have a positive financial impact.

The place to start is by crunching numbers, and if you’re having some trouble doing this on your own, you might want to talk to an accountant or a financial advisor to make sure that transferring your credit card balances is actually in your best interest. The reason is that you’re probably going to have to pay fees in order to transfer your balances, and these fees will likely vary by creditor. Some could be quite high, say several percent of the transfer amount. And if you’re doing multiple balance transfers, this could quickly add up to a significant cost.

That said, you need to balance the cost against what you stand to save in the process. If you’re transferring debt from one credit card to another, chances are you’re going to transfer from a high interest rate card to one with a lower rate. But you need to plan out payments and then calculate what you’ll pay in interest until the card is paid off. You can then check this against the cost you would have paid (if not for the transfer), as well as the cost of associated fees. If your debt isn’t very high, you might actually be better off simply paying down the debt you have as is, without making any transfers. The amount you’ll save depends on the difference in interest rates between credit accounts, the amount you’re transferring, transfer fees, and the number of transfers involved.

Keep in mind that you might not have room on your lowest-rate card to transfer all of your balances at once, and this could mean paying multiple transfer fees. In some cases, you may be able to qualify for zero percent transfers, provided your creditor even offers this option. So don’t hesitate to ask since it could make balance transfers a viable option for paying down your debt more quickly (not to mention saving you time on paying your monthly bills).

And think about the potential benefits of opening another card for the sole purpose of a credit card balance transfer. There are probably low interest credit cards out there that beat the cards you currently hold, and if you qualify, you could end up saving a ton by opening such an account and transferring higher-rate balances. You might even get zero APR for the first year or other appealing terms when you open a new account. It’s just another option to consider when it comes to credit card balance transfers.

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