If your debt is causing you concern, then it’s time to act. A credit card balance transfer is a tool that can improve your finances and give you breathing space to get your debt under control.
What is a credit card balance transfer?
A credit card balance transfer is when the outstanding balance of a credit card is moved to another, which typically has a lower interest rate or other benefits. This is usually done to reduce interest payments and consolidate debt, making it easier to actually pay off the debt.
How does a credit card balance transfer work?
- Look for credit card options with worthwhile balance transfer terms, i.e. low or 0% introductory interest for a specific period. It’s worth taking the time to understand the products available and read the fine print thoroughly, as there’s a considerable range in the amount of interest charged, the reduced rate period, fees, and interest charged on new purchases. The best choice for you depends on your circumstances, for example, how you will use the card and how quickly you can pay the balance down.
- Apply for the new credit card, specifying the amount you want to transfer from your old card. This amount must be within the new card’s credit limit. The new limit will typically be a little over the debt amount that you are transferring and, depending on the level of debt you are transferring, some banks will want to see the limit reduce as the debt reduces.
- Once approved, the new credit card company will pay off your old credit card, effectively transferring the balance to the new card. Make sure to cancel the old card!This will be a condition of the balance transfer.
- The initial promotional period should include a low or even 0% interest rate on the transferred balance. Paying off the balance as much as possible within this period is essential to improving your finances.
Benefits of a credit card balance transfer
- Interest savings during the promotional period allow you to pay down your debt.
- Debt consolidation by combining multiple credit cards into one card will simplify payments and potentially save you money.
- Getting on top of payments and using fewer credit providers can help your credit score.
The possible drawback of a credit card balance transfer
The interest rate may go up markedly at the end of the reduced rate period. Any initial progress could be negated if the balance hasn’t been significantly paid down. If possible, you should aim to pay the debt off entirely during the low-interest period; it will save you a lot of money in interest in the long term and ensure your debt doesn’t creep back up thanks to interest owed.
Credit card balance transfers are just one of a range of tools to manage debt. Structuring your debt correctly is vital for improving your financial health and can save you big money in interest payments. As always, we’re not here to judge why you got into debt; we’re here to help you get it sorted. Call 029 973 7911 or email firstname.lastname@example.org to arrange a free half-hour consultation.