One of the most common terms that relate to credit cards is “balance transfer.” Even if you don’t have a card yet, you’ve probably heard of it. A balance transfer is when you transfer your balance from one credit card to another, usually one with a lower interest rate. The purpose is to allow you to save money when you owe debt on your credit card that has a higher interest rate. There are six facts you must know about the balance transfer process.
Transferring a Balance isn’t the Same as Repaying
When you transfer the balance from one credit card to another, your intention is to reduce the interest tied to the balance. For example, if you have $1,000 worth of debt but your original card has a 20 percent interest rate, you would have to pay $1,200 on that card. If you transfer your balance on the first card to a new one that has a zero introductory APR, you would only owe the $1,000. Therefore, you would be saving the $200 interest.
Transfer Rates Eventually Expire
It’s important to acknowledge that just because you get a credit card with a zero or very low balance transfer rate, that doesn’t mean the rate will stay that low. At some point, it will expire and increase, usually after six months to one year. This means if you have transferred a balance from a higher interest card, you must repay your debt sooner rather than later, or you will have a nasty surprise when the low transfer rate expires.
Consolidating Simplifies Payments
Balance transfers can work toward consolidating all your payments to a single card with a low interest. It makes things simpler for you, especially if you have maxed out other credit cards and tend to amass late fees. With a balance transfer, you only have to keep track of a single payment every month.
Fees will Come
Eventually, with a balance transfer, you will be charged a balance transfer fee. This is generally determined as a percentage of the full amount you are transferring. On average, a balance transfer fee is three percent.
Good Credit Requirement
It’s important to know that in order to qualify for balance transfer credit cards that have zero percent or low-interest rates, you must have at least good credit. If you do qualify, you can save a great deal of money by paying off your debts earlier.
Other Debts Can be Transferred
In addition to credit card debt, other types of debt can be transferred to balance transfer cards. Loans for large purchases like appliances and even cars can be moved to balance transfer credit cards with no interest.
If you have considerable debt and want to make things easier, consider applying for a low-interest balance transfer card. Be sure to research your options beforehand so that you get the credit card that best suits your needs.