What is a Balance Transfer credit card?
A balance transfer credit card allows you to transfer a high-interest debt from one card to another with lower interest rates. In most cases, the card issuer will offer you a 0% introductory rate for a certain number of months.
It can be a good option for people who struggle to pay off their debts and want to get ahead on their payments.
Are you thinking of getting a balance transfer credit card?
Many of our clients that have gone thru our credit repair program start looking for a balance transfer credit card so they can transfer the balances from their high-interest bad credit cards to a low-interest balance transfer card now that their credit has improved.
Before you apply for a balance transfer credit card, consider the following:
Now that you have a better credit score. You have to be careful where you apply for credit.
Don’t get too excited! Look over all their offers and pay attention to the following:
- Minimum credit score required
- Minimum age of credit file
- Intro APR on purchases
- APR (interest rate)
- Fees
- Rewards programs
- Terms and conditions
Choosing a credit card company to work with
Going from a credit card with over 19% interest to one that offers 0% for a limited time is very appealing! But not all offers are the same.
We recently noticed that several of our promotional rates had expired when we reviewed our credit cards and the interest rates we were paying.
We called, and some banks quickly adjusted our rate, but a few said they couldn’t help us.
So I started looking for a balance transfer credit card. I found that there are many options available, but not all of them are the best.
When looking for a balance transfer credit card, you want to know the following:
- What is the balance transfer fee? Some banks charge such high fees that it makes no sense to transfer the balance to them, even if they offer 0% for six months!
- How long will the promotional rate last? We decided to use Bank Of America because they offered us 0% transfer fees and 0% interest for 15 months!
- What is the interest rate you pay on purchases during the promotional period?
- After the promotion period, what will your interest rate be?
We made a budget and figured out how much we would need to pay for 15 months to pay off our high-interest debt. And what a relief! It is like getting a 15-month loan with 0% interest!
Tip: Reviewing the rates and terms of your credit cards at least two twice a year is a great habit to form. Many times you are on a promotional rate, and once that rate is over, the interest rate can easily double! By reviewing your rates, you can contact credit card companies and inform them that if they do not offer you the same or better rate, you will have to use another card!
Benefits of balance transfer credit cards
- Lower interest rates – The interest rates on balance transfer cards are often lower than those on credit cards with similar terms and conditions. That means that you will save money on your monthly debt payments.
- Consolidate credit card debt – Balance transfer cards can be a convenient and affordable solution to consolidate several credit debts into one manageable monthly payment.
- Better features and benefits – Balance transfer cards frequently offer extra benefits, such as rewards or discounts on goods and services.
Disadvantages of balance transfer credit cards
- Balance transfer fees – Transfer costs for balances can be quite expensive. These fees can range from 3% to 5%.
- Good Credit – To be eligible for a balance transfer card, you must have high to excellent credit.
- More debt – Receiving a new credit card increases your available credit. Carelessly spending could result in acquiring more debt than you can not possibly pay off.
How does a balance transfer affect your credit score?
Credit Inquiries
Be careful where you apply. Each application will generate a hard inquiry.
A hard inquiry can reduce your credit score by about 5 points. So do not apply to every balance transfer card available.
Do your research and only apply to the ones that not only meet your qualifications but also meet your needs!
Lower credit utilization
Let’s say you have $5,000 in credit card debt that is maxing out two bad credit cards.
Now you get a new credit card with a $15,000 credit limit. You transfer $5,000 of that debt to your new card. Currently, you have a $20,000 credit limit, but you are only utilizing $5,000 of it, which is less than 33%.
Finally, credit card balance transfers are a kind of reward for taking charge of your credit! It can assist you in getting your finances back on track and offers significant benefits to people who need them. However, balance transfer cards are not available to people with bad credit.
Before applying, make sure you comprehend the card terms and conditions. Also, make sure you pay off your debt in full each month.
Updated 6/20/18 by L. Roberts
