How to Choose The Best Balance Transfer Credit Card for You
When searching for a lower balance transfer credit card, be sure to assess these three key features:
- The balance transfer charges
- The rate of interest
- The span of time that the promotion will continue
You do not want to be paying 3% in charges just to attain the concession of a zero percent bid. But simultaneously, you do not want to settle for a short-term promotional period, one which will not give you sufficient time to completely pay off your debts, before the standard interest kicks in.
What is a Balance Transfer Credit Card?
Balance transfer credit cards are a great solution for people who want to consolidate their debt or pay off large credit card expenses without having to pay heavy interest and added charges for defaulting. These cards usually have extremely low-interest rates, which is convenient if you need to pay off a large amount.Some credit card companies even offer balance transfer cards with 0% interest rates for new customers. The introductory low-interest offer is only available for a limited period of time, which can be from 180 days, 10 months, 1 year, etc.You can pay back your debt in this period with low interest. After the introductory period is complete, your balance transfer credit card will revert to regular interest rates. Banks and lending institutions offer this program to bring in new customers and hope you will continue to use the card even after your debt or bills are paid off.This card is easy to use. You just need to choose the right credit card for your requirements and submit the application. When your application is approved and you get the card, you can pay off your other cards and debts with your new balance transfer credit card.The debt from your high-interest credit cards is cleared so you don’t have to pay more money to the credit card companies than you need to. Your monthly payments will go towards the principal debt amount rather than the accumulated interest.A balance transfer is the use of one credit card
to pay off another credit card. The balance is shifted between cards; the new card takes the balance of the old card and the old card remains valid but with a zero balance.
Benefits of Balance Transfer Credit Card
The idea of getting another credit card might not appeal to most people, but this is a good solution to reduce the credit burden. There are several distinct advantages of this program that can make getting a new credit card worth your while. Here are some of them.
- Your debt will be easier to manage. Instead of keeping track of several credit card bills at once, you can focus on just one.
- You can reduce the number of credit cards you have by clearing all debt and canceling a few. For example, if you have five credit cards and you can make do with two or three, you can clear the bills from a few of them and then cancel them. This will also help you limit your expenses.
- You could potentially save hundreds of dollars on interest rates if you pay off all your debt during the promotional period. For example, if you’re in a stable financial situation, you can transfer the debt to the balance transfer credit card and pay it off in a year.
- You won’t have to look at alternative solutions to reduce your debt. For example, you won’t have to apply for debt assistance programs like a consumer proposal in order to pay off your debt. Such programs can have an impact on your credit score and limit your ability to borrow money in the future.
As you might have guessed, these credit cards
are only suitable for people who are responsible with their money and use a credit card wisely. If you intend to pay all the monthly bills on time and keep your expenses in check, the balance transfer credit card is a great option for you.
The Idea behind Balance Transfer Credit Card
To attract new business, credit card issuers have designed a solution for customers with credit card debts by linking them up with another lender to make them switch over and use their credit cards. The credit card issuers provide a credit card with a promotional balance offer, which is available for a limited span of time. This enables customers to shift the balance over with the hope that they will be subscribers even when the offer period has expired.Mainly a person may consider a balance transfer if they have credit card debt on one card and there is a low-interest credit card
rate (sometimes 0%) to transfer to another card. This low introductory interest rate is only valid for a short period (6 to 12 months). The idea is viable if you can pay down your debt within this short promotional period.
Factors to Consider Before Transferring your Balance
- Balance Transfer Charges
The credit card issuer usually charges a balance transfer fee in the range of 1 to 5% of the amount your transfer offers. The switch could be worthless based on the interest rate offered on the new card.
- Increased Interest after the Promotional Period Expiry
The low-interest rate is valid only for a short period of time after which you will be required to pay a higher interest rate (could rise up to 19.99%). This is also the case if you miss any payments.If you purchase anything with the balance transfer credit card before paying off the original amount, these purchases will also attract an interest.
If you purchase anything with the balance transfer credit card before paying off the original amount, these purchases will also attract an interest.
When and How You Can Use Balance Transfer Credit Card to Your Benefit?
When used in the right way, a balance transfer can be a perfect way to save thousands on the interest charges. For instance, if you make a major purchase and need some time to pay off, a low introductory interest rate can be a solution for you.However, the plan may not work to your benefit if you plan to keep the balance past the introductory period, or if you plan to make any purchases with the card. In such a case, you should stick to your old card or consider looking at low-interest credit cards.Balance transfer credit cards allow you to transfer your existing credit card balance onto a new card with low or 0% rates that run for a fixed period of time (6 to 20 months), after which the interest rates return to a higher percentage. In most cases, balance transfer to a new card attracts a one-off transfer fee and a no annual fee credit card
. You can use this plan if you want to consolidate your debts and avoid a high-interest rate. Apart from the 0% interest rate, balance transfer credit cards can help you to save a lot of money when paying your debt.You need to understand how balance transfer works to so as to lower your credit card
interest payment. You also need to factor the various types of balance transfer card available in your market, the different balance transfer cards, and the mistakes to avoid when using balance transfer cards.
Applying For You Balance Transfer Credit Card
There are two ways through which you can apply for a new credit card;
- Online application.
- In-store application.
You will be required to fill in the details of your existing credit card debt and request the balance transfer to your new card. Your debt will automatically be shifted to the new card (a process that takes only a few days). For a successful application, you need to meet the eligibility requirements.Balance Transfer Fee
: - This refers to a one-off fee paid to your new credit card issuer. It is mostly between 1 and 5% of the debt transferred to your new card. The balance transfer fee is mostly charged for a balance transfer with a longer promotional period.The Need To Contact Your Own Bank
: - Once you have provided the details of your existing credit card during application, the new card issuer will handle the balance transfer without involving you directly. However, you may have to contact you old issuer if you wish to close the old card to avoid maintenance costs and annual fees where applicable.
How Does The New Card Issuer Gain?
You may wonder how your card issuer will gain when they charge 0% interest rate, but they stand to gain in the following two ways:
- Higher Interest Rate – If you fail to pay your full debt within the promotional period, you will revert to a higher interest rate.
- Gain New Clients – People are always unwilling to shift from one bank to the other and the cost of gaining new customers is always very high. Enticing people with discounted or 0% interest rate is a cost-effective way of winning new customers. To them, balance transfer credit cards is a cheap marketing strategy.