While credit cards can help you increase your purchasing power, their interest rates are infamously high.
If you don’t pay up your debts on time, you might end up stuck in a costly cycle. A balance transfer can be a great way of lowering your debt. It’s important to know that, not all cards are good for it.
That said, here is a guide to help you understand exactly how the best balance transfer credit cards work, how they impact your credit, and more.
How Balance Transfer’s Work
It is typically the movement of money from one card with a high-interest balance to another one with lower annual interest rates.
As such, you can pay up your balance while amassing less interest. Often, it is offered as promotions to debtors to help ease the payment burden.
You get to pay your debts and at the same time save money on interest. However, you cannot transfer your balance to another card issued by a similar company or affiliate.
How To Initiate A Balance Transfer
Now that you know how a balance transfer credit card works, here is how you can initiate it.
- Do some research
Before you opt for a particular balance transfer credit card, do some research. Compare credit cards from different companies and find out what offers they have.
Those with existing credit cards can request their issuers to send them checks or offers via mail or email or through their account. The best financial institutions offer low introductory APR deals of approximately 0% as promotion for a certain period after opening the card.
- Review your debt
It is always important to check the amount of debt on your card before making a transfer. Also, find out your minimum monthly payments, your existing interest rates, and the amount of money you can manage to pay per month.
This inventory will help you plan for your money and make timely payments. Plus, knowing how much you’re actually paying per month as interests can help put things into perspective.
- Make regular payments
As mentioned, most companies offer an introductory rate of 0 % APR within a certain period after opening the card. It is wise to pay off your debts within this period before the interest rates go up.
This will not only protect you from making costly payments due to rack-up fees but also reduce the amount of debt. Use your card balance to make a budget of the amount to pay each month within your introductory period. Read more here https://www.investopedia.com/credit-cards/balance-transfer-credit-card/
- Authorize the balance transfer
It is normally done via phone, cheque, or online. If done by phone, your service provider will ask you to provide the account details for the cards you are paying off. This also applies to online transactions.
If done by cheque, your credit card issuer will receive a cheque from your card company via mail or email. Usually, this process takes approximately five to seven working days while others can go up to 3 weeks.
- Use the new card wisely
Wait until the transfer is complete before making any more purchases. Additionally, stick to your monthly budget until all the previous balances are paid in full.
What To Look For In A Balance Transfer Card
The goal of a balance transfer card is to help you save on fees or interests. That said, here are some of the things to consider when looking for one.
- Low transfer fees
Most companies may require you to pay certain transfer fees during the transaction. These fees may differ from one company to the other, so it’s important to compare the options available.
Still, there are those few companies with zero-fee transfer cards only that the approval process might be complicated. Make sure to compare and calculate the number of transfer fees you will end up paying at the end to avoid surprises.
- Low introductory APR
Choose a credit card with the lowest introductory rate. For most companies, their introductory APR rates are as low as 0%. However, you may not qualify for a low introductory APR if your credit history is poor.
- Long introductory period:
Cards with a long introductory period allow you to make fewer monthly payments and save you more on interest rates. Generally, most cards have an introductory period of approximately 12 months. Still, there are others with a long introductory period of up to 18-24 months. The length of your introductory period depends mainly on your credit history. Click here for more insights.
If you are thinking of getting a credit card you must understand how it works. It is an excellent way to save money but you must commit to paying off your debts promptly. Experts encourage debtors to pay off their balances within the introductory APR period to avoid incurring high-interest rates.