Balance transfer cards can be a great tool for those knowing how to use them responsibly. Otherwise, they could create a worse situation at the end, with potentially even higher interest rates kicking in when the introductory period of 0% APR ends. With that in mind, we want to demystify these sort of products – so here are 5 commonly asked questions about balance transfer cards:
1. What is a balance transfer credit card?
A balance transfer card is a credit card that offers a low interest rate, or even none at all for an introductory period, typically 6-21 months. It enables users to move debt from their high-interest credit card to the balance transfer card and save on interest payments so they could ideally clear their debt (or fund a bigger purchase).
2. Who can qualify for a balance transfer card?
Many people can qualify for a balance transfer card, but the best terms are reserved for those with an excellent credit score. Generally speaking, the better your credit score – the longer the period of 0% APR will last (up to 21 months). Those with a lower credit score, presuming the credit card company allows them to take one of these cards, will get a fewer months of 0% APR and higher APR afterwards.
3. How balance transfers work?
Say you’re approved for a balance transfer card, then you should move the balance from your other card(s) to the new one to save on interest payments. You can either do that via phone or via the web, or if you prefer — by visiting the local branch of your credit card company (or bank). From there, the idea is to payoff the debt while you’re still in the period of introductory 0% APR and get out of debt.
4. Are there any costs associated with balance transfers?
The most important cost to deal with is the balance transfer fee, which typically stands at 3 to 5 percent, though there are some cards that don’t have this cost at all. In addition, if you don’t pay off what you owe during the introductory period of 0% APR, you will have to deal with interest payments — so by all means try to get out of debt during that time.
5. What are the pitfalls?
The balance transfer “game” can be dangerous if you don’t make regular payments.. After the introductory period ends, your balance will be subject to interest rates, which can be higher than the rate you were paying previously. Similarly, if you pay late or fail to make a minimum payment, you could lose the introductory offer and be hit with a higher interest rate right away.
Finally, now that you have moved balance to the new card, it could be tempting to start using the old card again — it’s debt free now — don’t do it. Before you know it, you could end up in a worse situation than when you started.
Wrapping it up we want to add that a balance transfer card could be a powerful tool to help you get out of debt. As long as you can qualify for favorable terms and use it responsibly, such product will help you get your finances back on track.
In order to do so, go for the card that doesn’t charge a balance transfer fee or get the one with the longer period of 0% APR. Also, you will need to create a plan and follow through on it. That’s the main idea here; rather than to use a balance transfer card for another shopping spree. Cause you know where that leads, right?