How Balance Transfers Help You Save Money On Interest

If you want to be savvy about your personal finances, lowering your credit card interest is a great place to start! But before you say yes to a 0% balance transfer offer, learn the ins and outs of the process so you can save the most money possible.

Understand how balance transfers work

Before you evaluate your options, it helps to know what’s happening behind the scenes. To complete a balance transfer, a new credit card issuer claims ownership of your balance by paying off the existing amount on your old card and transferring the total amount owed to the new card. Your balance will now be subject to a different interest rate — usually a promotional rate like 0% APR for 6 to 18 months. In most cases, you will also be charged a balance transfer fee, which is typically 3% of the amount transferred.

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Save money on Interest with these 2 steps

1. Calculate whether it makes financial sense to pay the balance transfer fee.

For example, say you have a $3,000 balance at 15% interest. You plan to move it to a card with a 0% promotional interest rate. While it will cost about $30 to complete the transfer, you can save $270 in interest if you pay off your balance over the course of 12 months.

2. Pay off as much money as possible during the promotional period.

By law, promotional interest rates have to last at least six months1. This means more (or all) of what you pay will be applied directly to the amount you owe during this time period. To save the most dough on interest payments, make more payments than you usually would.

Enjoy extra benefits

1. Streamline Your Finances

Balance transfers can also make your life a heck of a lot more convenient. For example, you can consolidate multiple balances onto one card, which means you’ll have to make fewer payments each month. With fewer payments to remember, you’ll slash your risk of the incurring costly late payment fees and higher penalty interest rates caused by missed payments.

2. Cover a Much Needed Purchase

Sometimes, the kitchen stove breaks or your car needs new tires, and there just isn’t enough money in the bank to cover the cost. If your new card’s promotional interest rate extends to new purchases, you can use a balance transfer to get what you need without paying high interest rates for the privilege. (Just be sure to pay it off as soon as you can!)

1. http://www.creditcards.com/credit-card-news/no-payment-no-interest-plan-deferred-credit-card-act-1282.php

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. 

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