Accumulating a significant balance on a high-APR credit card can be frustrating.
A substantial portion of your monthly payment goes to interest, and you only see a slowly chip away at your debt. In this case, a balance transfer may be a good idea. Many lenders and credit companies offer products with interest rates as low as 0% on balance transfers (based on your credit score) to attract new customers and clients.
Balance transfer fees are standard, generally 3% of your total balance, although this can often be waived through special promotions. Many companies also limit the amount that you can transfer.
Applying for a Balance Transfer
If you can find a credit card with low-interest rates offered for some time in which you could pay your balance, little to no balance transfers fees, and a credit limit high enough to accommodate your balances, then a balance transfer may be beneficial. When you do a balance transfer, more of your monthly payment is contributed to the principle, rather than most of your bill payment going toward interest.
You often need good or excellent credit history to get attractive introductory offers. Although you may be eligible for a balance transfer if you apply and qualify for a new card, interest rates will generally be far above the 0 to 5 percent introductory rate many lenders advertise.
Balance transfers are not an excellent way to improve your credit score or avoid late payments. Balance transfers themselves can take up to two weeks before they are completed. During this period, payments will have to be maintained to the creditor that still holds your balance.
Living with a Balance Transfer
So you’ve qualified for a balance transfer and transferred your debt to your new low-interest account – now what do you do? Ensure that the accounts that held your previous balances have been paid in full by receiving a statement from your old creditor. Once your balances have been successfully moved, keeping these cards open is a good idea. Charging very little on your cards and paying off the balances in full every month is a great way to boost your credit score while you pay down your debt. If you still have a remaining balance on your card, continue making your payments complete and on time.
In the meantime, you’ll want to tackle your balance transfer debt before the introductory period expires. If you make insufficient payments or fail to make them on time, your intro rate could disappear.
Before applying for a balance transfer and a new credit card, reviewing the creditor’s terms of service is a good idea. Every credit company is required to disclose its complete rate plan to the consumer. This documentation should tell you the amount owed at each credit level for bank-to-bank balance transfers and how long the advertised rate will last. Keep in mind that missing payments can void your initial agreement and rate.
If you’re unsure if a balance transfer is a right move for you, don’t hesitate to call the issuing company you want for your balance transfer and ask questions. Before the call, it’s a good idea to get familiar with your credit score and be prepared to discuss any negative terms on your credit report. With the correct information, your credit card company’s representative should be able to give you detailed information about the offers available for your particular situation.
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