How To Use A Balance Transfer Credit Card To Get Out Of Debt
/It is easy to get caught up in credit card debt, particularly if you carry a large balance on a high-interest credit card. If you have multiple high-interest credit card debt and you are trying to save money on your debt repayment, you may want to consider a balance transfer credit card with a long 0% APR offer for balance transfers to avoid paying interest while paying off your debt quickly.
If you are looking for ways to save money on interest payments while paying off your debt quickly, a balance transfer credit card can help to reduce your monthly expenses.
If you are trying to save money and you have high-interest debt, this article will show you how to use a balance transfer credit card to get out of debt fast while saving money on interest payments.
What is a balance transfer credit card?
A balance transfer credit card allows you to transfer a high-interest balance from an existing credit card to the balance transfer card that offers a low or 0% interest rate on the balance transferred for a set period. If you pay off the balance transferred within the promotional period after opening the account, you can pay little or no interest to save money on interest payments.
How does a balance transfer credit card work?
When you get a balance transfer credit card, you will be able to transfer your existing balance from one or more credit cards onto the new card that will pay off the balance you owed to the other credit card, or credit cards.
For example, if you transfer a balance of $5,000 from a high-APR credit card to a balance transfer credit card with low-interest rate, the issuer of your balance transfer card pays off the balance transferred you owed to the other credit card issuer for you. Once the transfer is done, you will now have to pay back the balance transferred to the issuer of your balance transfer credit card, paying little or no interest during the low or 0% interest rate period.
Most balance transfer cards offer a low or 0% introductory interest offer that lets you pay low or no interest for a set period of time, while paying off your balance transferred. After this low or 0% introductory APR period ends, you will be charged interest on any outstanding balance at the standard APR for the new card.
How many balance transfers you can do on one card largely depends on the card issuer. But, generally, most of the balance transfer credit card providers will allow as many balance transfers as your transfer limit allows. So, in most cases, you can transfer balances from two or more credit cards onto a balance transfer credit card that offers balance transfers.
You usually cannot carry out balance transfers between credit cards issued by the same credit card provider.
How much you can transfer from your existing balance will depend on the credit limit of your balance transfer credit card, and the transfer limit and the available credit limit on the balance transfer credit card.
There is normally a fee to transfer your balance to the balance transfer credit card. This can be 1%-5% on the amount you want to transfer. Some issuers may charge a set price.
What to look for in a balance transfer credit card?
Before you apply for a new balance transfer card, here are some things to consider to help you decide which card to apply for:
0% APR period
How long you receive the interest-free period to pay off your existing balance should be one of the most important factors before you apply for a balance transfer card. The longer the 0% introductory APR period, the better, as you will be able to spread your monthly repayments. over a longer period while still paying off the debt interest-free.
That being said you may end up paying more balance transfer fees if you choose a 0% interest period longer than you actually need. But keep in mind that if you are not able to pay off your existing balance before the 0% APR period ends, the new rate might be higher than the interest rate on your original credit card.
Standard APR
This is the interest rate that you will pay after the 0% interest period ends. This rate can be even higher than the interest rate on your existing card. You should choose a new card that has a lower standard APR than your existing credit card.
It is important to consider the standard APR in case you are not able to pay off your debt during the 0% APR period.
Balance transfer amount
How much you can transfer from your existing card to the new card should be an important consideration. Look for a balance transfer card that offers a credit limit that is much higher than the amount of debt you have.
You will need to know the amount your chosen balance transfer card will let you transfer onto the new card. Some issuers may let you transfer the full amount or only part of your credit limit, depending on the new card issuer.
Choose a balance transfer card that will let you transfer the full amount or 90% of your credit limit.
Balance transfer fee
There is normally a fee for the balance you want to transfer. It may be a percentage of the overall amount you want to transfer, usually 1%-5%, depending on the length of the promotional period. Once you carry out a balance transfer, the amount charged as a fee is added to your total balance.
But there are a few balance transfer cards that do not have a balance transfer fee if you go for a short low or 0% interest rate promotional period. If you do not need a very long 0% interest rate period to pay off your balance with no interest, then choose a card that offers a short promotional period with no balance transfer fee.
Annual fee
You should be looking for a new credit card that does not have an annual fee. But if you choose a card that comes with an annual fee, make sure the amount you pay every year is not higher than their competitors.
Advantages of using a balance transfer credit card
By transferring balances from high-APR credit cards to a balance transfer credit card with a low or 0% interest rate for a set period, you can
save money on interest payments
pay off debt interest-free if you can take advantage of a long 0% introductory interest rate period
get out of debt fast while paying little or no interest
consolidate several card balances
pay off your debt quicker
If you are looking for ways to save money on interest payments while paying off your debt quickly, a balance transfer credit card can help to pay off your debt fast while saving money on interest payments to reduce your monthly expenses.
Tips on how to use a balance transfer credit card to get out of debt
Whichever balance transfer credit card is right for you, here are some things to consider when it comes to how to use a balance transfer credit card to get out of debt:
Always pay on time and every time, even if you receive a 0% interest rate offer
Always pay more than the minimum monthly repayments if you go for a lower standard APR balance transfer credit card to get out of debt quickly.
Try to pay off your balance before the low or 0% promotional period ends if you go for a balance transfer card that offers a low or 0% interest rate period.
Make extra repayments after your balance transfer introductory period ends because you may be paying a higher interest rate on the remaining balance as the standard APR on your balance transfer card tends to be higher after the promotional period ends.
If you have multiple credit card balances, consolidate those balances onto the balance transfer card, as it is easier to manage your debt making just one monthly payment until the balances are paid off while saving money on your debt repayment.
Do not make any new purchases on your balance transfer credit card.
If you use your 0% balance transfer card for planned purchases that are in your budget, make sure to pay them off in full.
As you can see, how to use a balance transfer credit card to get out of debt will depend on your individual circumstances.
Conclusion
When it comes to how to use a balance transfer credit card to get out of debt, make sure you pay off your debt before the introductory APR period ends. But if you choose a balance transfer card with a lower standard APR, then make sure that you can pay more than the monthly minimum payments to save money on interest and pay down your debt faster.
If you choose to use a balance transfer credit card to pay off debt quicker, choose one that offers a long 0% introductory interest rate period to avoid paying interest charges while paying off the existing balance before the 0% introductory interest rate period ends.
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Disclaimer: the content presented in this article is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
