Balance Transfer for Debt Repayment: Is It a Good Idea?
Paying off debts can be expensive. Fortunately, one tool can make this process cheaper. This is a balance transfer. Balance transfers allow you to consolidate your credit card debt onto a new card. A good balance transfer card will have a zero or near-zero interest rate for balance transfers during a specific period. Transferring the debt to a credit card with a lower interest rate effectively buys you more time to pay down this debt. In effect, you’re paying the same loan minus the interest rate.
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Factors to Consider While Choosing a Balance Transfer Card
When choosing a credit card for a balance transfer, you should consider a few critical things.
- You should get a zero or near-zero promotional APR card for balance transfers.
- The card should also have a low balance transfer fee.
- You should select a card with a high credit limit to cover the transferred balance.
Who is a Good Candidate for a Balance Transfer Card?
Not everybody is a good candidate for balance transfer credit cards. In general, the best applicants are those who possess the following features.
- They have a suitable credit score. To qualify for a card with a balance transfer feature, you must have a credit score of 701 or more. You will also need to be eligible for a credit limit that covers the amount of your debt.
- They can pay off the debt before the promotional period expires. You need to have a plan to successfully pay off the debt by the time the promotional period ends. More importantly, you need to be able to stick to the plan. You must select a card that will give you enough promotional time to entirely eliminate debt. Once the promotional period wears off, the interest rate on the card will jump to a higher rate.
Avoid 0% Balance Transfer Traps
Balance Transfer for Effective Debt Repayment
Once approved for a balance transfer card, you can pay off the balance from your previous card via the Internet or over the telephone. Balance transfers take about two weeks to be processed. When the balance is transferred, pay off your card immediately. Balance transfers can help your monthly payments decrease, saving you money every month. This is because your monthly payments during the promotional period go towards paying the principal, not the interest.
Don’t incur more debt when paying off your credit card balance. You’ve worked hard to pay off your debt and should not get into debt again.
Use Balance Transfer Cards Wisely
Balance transfers are great if you qualify for them and plan to pay off your debt entirely and on time. Consider all fees and rates when applying for a balance transfer credit card. If the terms are reasonable, paying off debt with balance transfers can be successful. Use this balance transfer calculator to see if transferring your balance to another card will save you money.
Last Updated: February 4, 2022