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When You Should Consider a Balance Transfer

Credit Cards
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balance transfer

Balance transfer credit cards are a boon for the indebted. After all, going from paying 21% in credit card interest to paying 0% is incredible and can help you get out of debt much faster. But they aren’t a suitable option for everyone. Here’s when you should consider a balance transfer.

What’s a balance transfer?

A balance transfer is aptly named — it’s the transfer of a balance from one credit card to another one. Often times, a balance transfer can be made from a card accruing interest each month to a card with 0% interest for a certain number of months. This transfer will not only go from one card to another, but also from one bank to another, because there isn’t any incentive for a bank collecting interest from you to bring your rate down to 0%.

The ups and downs of balance transfers

Balance transfers can give you a great opportunity to avoid paying interest if you use them right. The upsides of balance transfers are:

  • You’ll enjoy a 0% interest rate. Many balance transfer cards offer 0% interest, usually for 12 to 21 months. This gives you time to attack your credit card debt without the cost and frustration of interest.

  • You can consolidate your debt. If you have a few credit cards with balances and are feeling overwhelmed, you can consolidate your debt onto one new balance transfer card (credit score permitting, of course).

Balance transfers may seem too good to be true, and you’d be right to be slightly skeptical. The downsides of balance transfers include:

  • A credit application for the balance transfer card will initiate a hard inquiry. A hard pull of your credit will hurt your credit a touch, so expect a small drop in score.

  • Most balance transfer cards have a fee. The majority of balance transfer cards will charge a fee — usually 3% — for the privilege of transferring.

  • Those with debt issues may go further into debt. When you transfer a balance, your old card will be available for use. If you have control over your finances now, this isn’t an issue. However, if you’re still a little spend-happy, you may be tempted to run up a balance again.

  • You could have a higher interest rate once the promotional period expires. After the end of your 0% introductory period, the interest rate may be higher than your original interest rate. This is fine if your remaining balance is low, but it’s a problem if you didn’t make progress on your debt during the 0% period.

When should I consider a balance transfer? 

1. It will take you more than six months to a year to pay off your balance at your current rate. A large balance that can’t be paid off in the near future can accumulate interest for years to come. A balance transfer can get you to 0% interest. It will likely be worth the small hit you’ll take from the hard inquiry initiated when you apply for the transfer.

2. You have a plan to pay off your credit card debt. Balance transfers can be either a great tool or a temporary solution. Before you initiate a balance transfer, create a plan to pay it off before the 0% interest expires. Don’t run up a new balance on the old card, and avoid credit card usage until you can pay it off in full. Credit cards are great, but only if you use them correctly.

3. You have multiple credit cards with balances you want to pay off. While consolidation isn’t for everyone, it’s helpful for people who want to make one payment on one account each month. Of course, as noted above, make sure you have a plan and don’t run up the balances again on the old cards.

4. You have a good credit score. If your score is already poor, don’t continue to hack away at it by applying for another credit card. There’s a good chance those with poor credit won’t get approved for a balance transfer anyway. Credit is given more easily to those who need it least, so a good credit score will make a balance transfer card more likely to be approved.

5. The fee you’ll pay is less than the interest you’ll incur before you pay off your current card. Most balance transfer offers come with a fee of 3% to 4% of your balance. Do the math first to ensure you won’t be paying a higher amount in fees than you would pay in interest on the card you have now. Psychologically, a balance transfer might make you feel like you’re making progress, but mathematically, it doesn’t always work out.

Bottom line: Balance transfers have their upsides and downsides, but in the end, their effectiveness will depend on your situation. Use a balance transfer if it will take you a long time to pay off your debt otherwise, you have a plan, you want to consolidate, you have a good credit score, and the fee is cheaper than the interest you’ll have to pay. If a balance transfer is right for you, check out our favorite balance transfer credit cards.  

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