Balance Transfer Method
Looking for a way to consolidate your debt? If yes, then balance transfer might be a good debt reduction option for you! Balance transfer is a method that can easily help you reduce your interest cost and pay your debt, but of course, only if you use it responsibly.
Let’s take a closer look at how this method actually works and what are the advantages of opting for this debt consolidation strategy.
Balance Transfer – What is it?
Balance transfer is a strategic move to consolidate your credit card debt onto one card, thereby saving good money on interest charges, which we have already established, are one of the top reasons for debtors becoming overburdened with debt.
Using this method, you can easily switch a credit or a loan balance to another credit card. For example, a zero balance transfer credit card will enable you to transfer a certain amount of money into your new account without any interest charges for a limited time period, which is often referred to as the introductory period. This introductory period is usually between six months to a year.
However, when you transfer your balance, you will of course, have to pay a onetime fee which ranges between 2.5 percent or 3 percent of the amount transferred. Once you pay this fee and transfer your balance to your new account, you get a certain amount of time to pay off the debt you owe through your new account without any interest charges. Simply put, it gives you the opportunity to pay off your dues with zero interest. Now, can you imagine the savings you can make and how easily you can overcome your debt management problems?
Balance Transfer – Important Things to Keep in Mind
It is important to understand that not all balance transfers are the same. That’s right! The process may slightly vary from creditor to creditor. For example, some balance transfers may be valid for one balance transfer from one credit card, while some companies may allow you to transfer as many balances as you like.
Also, the promotional rate on balance transfer may also differ from company to company. Some may offer you a period of six months, while others may offer 9 or 12 months. So it’s crucial you have good understanding of it to ensure you that make the best balance transfer decisions and manage to pay off your debt timely.
Advantages and Disadvantages of Balance Transfer
Now, let us explore the benefits of this method to understand whether or not it is suitable for your situation:
1. Outstanding Savings as You Pay on Zero or Low Interest Rate
Zero interest is probably the best thing about this debt reduction strategy. By transferring your balance from a high interest rate credit card to a zero interest rate card, you can save hundreds of dollars which otherwise, you’ll have to part with, because of high interest rate charges on your monthly debt payments.
Let’s suppose you have to pay 13% interest rate on your credit A with $2000 debt and your monthly payments are $347 for 6 months. Now if you open a new account with an intention to pay off credit card A with card B with zero interest, your debt payments will be $334 and you can save $77 through this process.
2. It Simplifies Your Debt Payments
Another benefit is that it can simplify your complex financial life in no time. If you have maxed out your credit cards and you cannot keep minimum payments straight and mostly accrue late fees, then balance transfer can be a good move for you. Using this method, you’ll only have one credit card to keep track of with a single monthly payment to make each month. It will truly make your financial life simple.
3. Enables you to Transfer Different Types of Debts
Balance transfer enables you to transfer other types of debts too. You can easily move loans on furniture, cars, appliances and other types of monthly installment loans to a no or low interest balance transfer card with the help of checks from the bank that issues the card. So this is definitely an option that might benefit you if you are struggling with debt other than multiple card payments.
Just like every debt reduction strategy, balance transfer also has some disadvantages. These include:
The Zero Interest Rate Is an Introductory Offer, It Expires With Time
The zero or low interest rate is just valid for 6 to 12 months, whatever the introductory period may be. In other words, it doesn’t last forever. And once this period ends, the interest rate on the card will increase to 12 to 18 percent. This means transferring your balance to a zero interest rate card will only be a good strategy if you think you can pay off your entire debt within the introductory period. If you cannot, then you might have to opt for an alternative debt reduction strategy like debt snowball or avalanche approach.
Fees on Your Credit Card is Inevitable
Swapping your balance from credit card A to credit card B may look simple and an attractive option but let us tell you that it comes with a price. You will be charged when you transfer your balance from card A to B. The transfer fee is determined as the percentage of the total amount you will be transferring. Also, it is important to note that previously, the balance transfer fee was capped but not anymore. Since they are not capped, so the higher the amount you transfer, the bigger will be your transfer fee.
You Need Good Credit To Qualify
To get zero interest balance transfer credit cards on the best terms, you will need a good credit score. In other words, best terms are only available to debtors with good or excellent credit scores. If you don’t have it, then this may not be a good debt reduction strategy for you. However, if you do have a good score, then it might be the way to go!
For more information on balance transfer or assistance, get in touch with us today.