Did you know that the average American has just over $6,000 in credit card debt (according to Experian)? It’s true! If you’re one of the many consumers who feels overwhelmed by how much they owe on their credit cards, then maybe it is time to consider a balance transfer.
What’s a balance transfer?
A balance transfer is just as it sounds. It is when you, the consumer, choose to transfer all or a portion of your remaining credit card balance to a different card/carrier.
Why is this done?
The main reason individuals choose to transfer their outstanding balances is to save on interest expenses by lowering their interest rates and therefore, make it easier to pay down the credit card debt. For instance, if you are currently carrying a balance on a card that is charging you over 16% interest, you may be able to save a significant amount of money by transferring that balance to a card that charges no or very low interest.
What is the “catch”?
In order to execute a balance transfer (assuming you’re eligible to do so), most credit card companies will charge you a fee. Typically, this fee amounts to about 3% – 5% of your current outstanding balance. To use round numbers, this would mean that if your balance was $10,000 you would be responsible for paying a $300 fee to complete the transfer.
When might it make sense to transfer the balance?
Balance transfers make the most sense if …
- The amount you’d save in interest by switching cards would outweigh the costs of executing the transfer.
- You are confident you have a plan in place to make all of the minimum payments and are able to pay off your balance before the new card’s introductory 0% APR offer expires. Most of these cards give you a 12-month window of little to no interest.
- Your credit score permits you to execute the transfer.
How can you get started?
Begin by doing your research to determine the type of card you’d want to use for this purpose. Bankrate.com does a great job of listing and assigning grades to the available options, and also lists what types of credit scores you might need for each card. Pro-tip: aim to avoid a card that charges an annual fee so that you can keep more of your money free for paying off the credit balance you owe. Then, begin calling or applying online to transfer your credit card balance. Be mindful that doing so may result in a hard inquiry on your credit.
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