Love ’em or hate ’em, credit cards are a big part of our everyday lives. We use them for everything and earn points, miles or other rewards in the process. We all say we’ll pay them off at the end of every month, but inevitably we’ll get a little bit lazy, or some emergency will come up that leaves a small balance at the end of the month. And slowly but surely, that balance creeps up until we owe hundreds or thousands of dollars. If this sounds like you, a great option is to balance transfer from your current card over to a new card.
Why Balance Transfer?
There is really only one reason it makes sense to do a credit card balance transfer: interest rate. When you pay your card off every month you don’t have any need to pay attention to the interest rate because it never goes into effect. But once you start running a balance you may be shocked at what the interest is costing. The average rate in the U.S. on credit cards is over 15%, and if you have poor credit, that rate could easily be 20%-30%. Balance transfers allow you to move your current debt to a new credit card at a 0% interest rate for some initial period…often 12-18 months. On a $5,000 balance, that can be a savings of over $1,000 in interest.
Balance Transfer Tips
- Read the fine print and watch out for balance transfer fees
There are many credit card options out there when it comes to doing a transfer. Some cards will charge a 3% balance transfer fee and some will waive it completely. A small transfer fee is still a good deal because it’s only 3% instead of 15%. But it only makes sense if you focus on paying off the balance. If you keep the balance or add to it, the 3% is just wasted money. Whatever the case, make sure you read all the little details and make sure you understand what it means.
- Beware of “pre-approved” advertisements
Many credit card companies lure you in by saying you’re approved for a higher credit amount than you really are. You may be all the way through the application process for the new card and find out they are only offering you a transfer for half of what you owe.
- Cut up the both the new and the old card
Credit card rewards only make sense if you pay off your cards each and every month. As soon as you begin paying fees and interest the benefit is thrown out the window. The point of doing a transfer is to pay no interest so you can focus on paying the card completely off. Cutting up the cards will remove the temptation to continue adding to the balance.
Credit cards are convenient and may offer some cool rewards. But it takes discipline and planning to stay in control of them instead of the cards controlling you. A credit card transfer is a great way to lower your interest payment while focusing on eliminating the balance. But remember, as soon as the promotional period is over on the new card, you will start having to pay interest on that one. Hopefully, by then you will have paid off all the debt. But if not, you can always do another balance transfer to another new card.