Credit Card Balance Transfer- Everything You Need To Know
Almost 86% of US citizens use credit cards to make purchases and payments. But 56% of them really don’t know that what the interest rate is. This is the reason, most of them build credit card debt unintentionally. And then they opt for the balance transfer option to get out of debt. In this article, we will discuss all the important things and facts you may need to know about credit card balance transfer.
What Is a Credit Card Balance Transfer?
A credit card balance transfer is when you transfer the balance of your card with a high-interest rate to another card with a relatively lower interest rate. It is promoted as one of the most effective ways to get out of credit card debt by companies that provide credit cards. People struggling with debt often use the balance transfer method to save a lot of bucks on the interest amount while paying off the debt.
When you perform a quick search on the internet, you are shown with plenty of results telling you that transferring the balance to a new credit card is a good idea to pay off debt while saving money in terms of paying no interest rates. But you should dig deeper to understand the terms and conditions to make sure you are making an informed decision and not building more debt by transferring the balance to another card.
What Are Balance Transfer Credit Cards?
A particular type of credit card that allows you to transfer balance of your other cards or accounts is known as a balance transfer credit card. Such cards usually come with a 0% annual percentage rate. This means you are not paying the interest rate towards balance payments for a given period of time. This is the reason, people opt for a new card with balance transfer feature to pay the balance of their other cards without making bigger payments towards interest.
It sounds like a great idea to apply for a balance transfer card but one should do proper homework and review different offers to make a wise decision. Since the 0% APR period is temporary and comes with an expiry, you should be cautious and make payments before the grace period expires. Not only this, you may also need to make a 3 to 5% of balance transfer fee on each transfer transaction you perform.
Once the promoted 0% APR period is expired, you will be charged by the company with variable interest rates from 11 to 25%. This means, if you fail to pay your balance in full during the 0% APR period, you will be charged up to 25% interest rate.
Do Balance Transfers Hurt Credit Score?
Whenever you sign up for a new card, the company usually conducts a hard inquiry about your current creditworthiness to see should really want to lend you money. It makes a tiny ding in your current credit scores and your scores bounce back to normal after a short span of time. The same goes with applying for a balance transfer credit card. You will see a quick drop in your score for a few points but you will get them back soon.
Are Balance Transfer Credit Cards Worth It?
As it is mentioned above, the balance transfer method is one of the effective ways to pay off credit card debt faster, applying for one could provide you with a temporary debt repayment solution. But don’t take it as the best debt management tool especially if you live paycheck to paycheck.
A balance transfer credit card comes with a 0% APR period that can help you save so many bucks when it comes to paying off credit card debt. But there are some hidden facts you should know about balance transfer cards to avoid building more debt. There might be a particular balance transfer fee that you need to pay upon each balance transfer transaction you perform. And if you fail to make a single monthly payment, the 0% APR grace period can come to an end. And then you will be paying an interest rate higher than your old credit card.