Are you carrying a balance on your credit cards?
Then you may have started receiving offers for balance transfer cards. If you’re trying to be responsible with your debt, then you probably put these offers with the others you receive – in the trash.
But in this case, a new credit card may be the thing that helps you address your outstanding balances once and for all. Are you ready to see how transferring your balances to one place can set you up for financial success? Follow these four steps to see if opening a card is right for you.
What Is A Balance Transfer Credit Card?
As you may have guessed, a balance transfer is when you transfer your debts into one place, in this case, a credit card. When you only have to address one balance, you can quickly schedule and make payments, and take advantage of paying less interest.
Speaking of interest, this is where balance transfer credit cards may be different from other types of loan consolidation.
When you open a balance transfer card, you are looking for one with a promotional period of 0% interest, which will allow you to pay off more of your debt. You’ll have a lower monthly payment, and those additional savings can go right back into paying off more.
You can consolidate various debt types, such as mortgages and other loans, along with credit cards when you do a balance transfer. However, you’d need to pay off a significant amount of that money within the promotional period, or you may be susceptible to increased interest rates. Your new card will also come with a credit limit, which may restrict how much you can consolidate.
Step 1: What To Ask Yourself Before You Apply For A Balance Transfer
Before you apply for a balance transfer credit card, you need to be sure that it won’t end up getting you in more trouble.
How much debt do you hold?: What is your total amount of debt, and how many accounts do you carry? Is the majority of your balance spread across multiple credit cards? Figure out your total number so that you can start looking into balance transfer options suitable for your debt.
What contributed to your debt?: Did you miss payments and then interest snowballed? Or did you charge more than you should have on one card, so you opened a new one for spending? Maybe a medical or another emergency caused you to rely on your cards? Whatever the case, it’s crucial that you handle your new card responsibly, or you’ll only end up adding to your debt.
What is your credit like?: You’ll need to apply for a balance transfer card with a credit check, so if you have poor credit, it may be hard to find an option with a low-enough rate or high-enough credit limit to make it worthwhile. However, your transfer card can positively impact your credit when you make timely payments.
Step 2: Factors To Consider When Opening A Balance Transfer Card
Preparation and research are essential when you’re considering a balance transfer. You want to be sure that you are improving your chances of debt repayment, not making the potential for increased debt even higher.
- Interest: Interest is the most crucial factor when it comes to a balance transfer card. Look for a card with a 0% promotional period so you can contribute more money to repayment. The more extended the period without interest the better, so look for options that give you a year of no additional accumulations.
- No fees: Don’t negate your savings in interest by paying hefty application fees for a transfer card. Some cards have a fee of up to 5% of the balance you transferred, so look to those who will waive this charge. You want an account with no annual fee if you’ll be holding it for awhile.
- Checks for transfers of other loan types: If you have other kinds of loans besides credit cards to add to your balance transfer card, request checks from the issuer that will allow you to transfer these funds.
- The standard rate: Most promotional periods range between 6 and 18 months, so it’s necessary to know what you’ll be on the hook for after this period ends. Your balance at that point will be susceptible to standard APR, which for most credit cards is upwards of 15%.
Step 3: How To Apply For A Balance Transfer Credit Card
You’ll apply for a balance transfer card in the same way you would any other card, typically online. You’ll fill out personal information and need to have a credit check run, which will ultimately determine your interest rate and promotions.
What makes transferring credit card balances to a new card so easy is that you can typically provide account numbers right away. The new card company then initiates payments to those older companies, and you have a new balance that consists of your prior loans. Verify how long it will take the new card issuer to make these payments so that you pay any outstanding accounts with due dates before then.
Step 4: What To Do After Your Balance Transfer
If you qualify for a card that gives you an additional credit amount available, do not spend it. Focus on paying off your balances, and you’ll soon have more money available while being more financially stable. If you qualify for a card that gives you a credit limit that is just enough to transfer your balances, know that you may end up taking a credit hit by utilizing too much of your available limits. If your new card offers you a $10,000 limit, but you have $12,000 in debt, you’ll need to decide on how to balance these amounts and what is best for your credit in the long run.
When your balances are consolidated, what is your plan for your old cards? It’s advisable to keep them open for your credit so long as you don’t spend anything. You get the additional credit limit reported on your accounts, without the growing balance, which will keep your credit utilization at a healthier ratio. But if you think the temptation of zero-balance accounts is too great, you may want to hide your cards or consider closing them.
A final word of advice before applying for balance transfer credit cards: you only want to do it once. Continuously rolling over debt at lower rates isn’t going to help you pay it off any faster, and you will find that eventually, lenders won’t extend any credit to you. Get more helpful tips on boosting your credit and controlling your finances sent right to your inbox — sign up for our newsletter now!