If you’re looking to live debt free, balance transferÂ cardsâ€”which allow you to transfer the balance from your existing card to a new card, often for a low introductory interest rateâ€”can be a viable option. What’s more, transferring your balance to another card might help improve your credit rating slightly. 1Â But you need to look carefully at the terms and conditions of any balance transfer offer before pulling the trigger.
Pay off debt faster with a balance transfer.
Why You Should Look Into Balance Transfer Offers
Transferring your balance to another card can serve two purposes: First, it could help you pay off your credit card debt quicker by allowing you to put more money toward principal and less toward interest. 2Â Secondly, a balance transfer could alter your debt utilization ratio, possibly boosting your credit score if you don’t run up the old card and keep your utilization low (under 20-30%) on the new card. 3
To pay down debt, it’s important to keep on top of your regular payments. It’s equally important not to charge your old card back up.
Balance Transfer Savings Come From Low Fees and Low Interest
There’s only one way to extract savings from a balance transfer: Find a card with a lower interest rate than the one you have. In fact, it’s wise to look for a card with a introductoryÂ zero % balance transfer offer. That way all of your payment is going toward paying down the principal.
When transferring a balance, you may incurÂ balance transfer fees. One to three percent of the total is common. 4Â However, if you hunt enough, you might be able to find a card with no fees at all. 5Â Remember, when you’re doing a balance transfer to pay down debt, you want to spend as little money as possible doing it.
Read the Fine Print of Your Balance Transfer Offer
Balance transfer details can also cause headaches. First and foremost, you want to know the duration of the introductory rate. Your goal should be to pay off the balance in its entirety by the time your introductory rate is up. Depending on the amount transferred and your monthly payments, six months may not be enough. A year isn’t bad, but 18 months is better.
Some balance transfers entail retroactively billing you for not paying off your transferred balance during the introductory period. 6Â And in some cases, the introductory interest rate only applies to the transferred balance, and new charges are subject to the card’s standard APR. As with any credit service, know what you’re signing up for.
Balance transfer savings canÂ be significant and could help you to get out of debt faster. Provided that you read the terms and conditions and have the discipline to pay the card off without charging up your old card, balance transfers couldÂ be an important tool to a debt-free life with a better credit rating.
Pay Off Debt Faster with a Balance Transfer.