What You need to Know about Balance Transfers
Since the introduction of credit cards, people have been struggling with revolving debt. Unlike other loans, credit cards have high interest rates that can change without warning. For many people, that means they’re constantly on the lookout for ways to reduce their interest rate and get their debt paid off as soon as possible. For some people, one solution is a balance transfer.
There are several things that you should know, however, if you’re thinking of trying this method.
- You need to have really good credit. A balance transfer only works if you’re able to find a card that is offering a lower interest rate than what you’re currently paying. Often, the only way to do that is to improve your credit score. In order to qualify for cards with 0% rates, you need to be in the top tier of credit ratings, usually 720 or higher.
- Pay attention to how long the rate is good for. Often, new credit cards advertise what are called “introductory rates”. These rates are artificially low for a few months, then they automatically increase. Make sure that you consider both the introductory rate and the “regular” rate on the card, especially if you don’t think you’ll be able to pay off the balance on the card before the introductory period is over.
- Look for the balance transfer fee. Thanks to new legislation, credit card companies now have to prominently display the balance transfer fee on the terms and conditions page. This fee will be charged on the entire balance that you transfer immediately. For example, if you owe $10,000 and the new card has a balance transfer fee of 3%, your new balance will be $10,300 on the new card. You’ll be charged interest on this amount at the end of the first month.
<p data-sp-element=”content”>If you decide that a balance transfer won’t help you with your debt problems, then you’ll need another solution. You might want to consider a debt consolidation loan. With these loans there are no balance transfer fees, and you can get a lower interest rate on your debt even if you already have bad credit. Instead of transferring just one or two cards’ worth of debt, you’ll be able to lower the interest rate on all of the cards, student loans, personal loans, and other debts that you have. As a result, you’ll turn several different loans with varying interest rates into a single loan with one interest rate.