If you’re carrying a credit card that has an outstanding balance and a higher interest rate, it might be a good idea to transfer that balance to a lower-interest credit card. Even when you have a low-interest rate credit card, you might be able to locate the one that is better.
If you’re a bit more diversified, and have several credit cards that have different dates for payments, you may prefer to make a single payment to keep your finances in order. If your credit score isn’t too bad that you’ve received some balance transfer offers through the mail.
What is a credit card balance transfer?
A balance transfer involves moving the balance of a credit card onto another. This is usually done to benefit from low interest rates or special deals offered by the new credit card.
Balance transfers can cut down the amount of interest you have to pay by transferring high-interest accounts to an account that has a lower interest rate. However not all offers are all created equal and some may be more expensive in the long run.
Balance transfer fees, late fees, charges, time limits and a host of fine print that could quickly become out of control. Keep reading to learn how to distinguish the best deals from the naughty ones.
What does an initial 0% APR on balance transfer really mean?
A balance transfer at 0% APR credit card is an appealing option if you’re trying to cut down your monthly payments or the overall interest rate. The idea of not paying interest on debts incurred through credit cards might seem like an ideal scenario for a lot of people who are people who are borrowers.
There’s a lot to consider prior to making this choice. Banks aren’t in the business of giving out cash for free however, they may provide incentives to help you grow your company to expand. However, the ultimate objective for them is always making money.
Since the majority of balance transfers at 0% APR are paid back before the initial rate is over banks have introduced fees to make sure they continue to earn money. The most significant cost you’ll encounter is the balance transfer fee, if there is one.
Balance Transfer Fees
The balance transfer charge is approximately 3 percent of the amount. However, it could be up to 5 percent. The initial fee is added onto the total amount of debt transferred and has to be paid regardless of whether the balance of the card is paid in full before the APR intro expires.
Annual Fees
Another hidden charge associated with a lot of credit cards, including only credit cards for balance transfers, is the annual cost. This is the cost the credit card issuer is charging you for having an account. A lot of introductory offers will waive the annual fee, however certain offers might not.
The average industry standard for annual fees for all credit cards is $58. This cost, when combined with the bank’s balance transfer fees could erase any potential benefits you could gain from the reduction of the interest rate. There are a variety of options available however it is important to understand the conditions and terms. The secret lies in the details.
Are credit card fees negotiable?
Prior to the 2009 financial regulations were in place, banks could charge low or no charges for balance transfer credit cards that offered zero-interest rates. Although this is no anymore the case but you are still able to bargain with the credit card company to cut or eliminate fees for balance transfer.
If you’re shopping around for a great rate it’s recommended contact the credit card provider to find out whether they are willing to modify their terms. Customers who have previously used their services and have a stable payments history will often be able to lower the initial transfer cost.
When should you think about the possibility of balance transfer?
As many know, it’s extremely easy to accumulate the debt from credit cards. Perhaps you’re just beginning to learn about credit cards and you’ve bought many a lattes or maybe you stumbled into financial difficulties. In either scenario the balance is higher than you’d like.
There is no formula that can determine whether the balance transfer credit card is the best choice for you. However, there are factors that can to make your decision more streamlined. Look at the amount of interest you’re charged and the time it will take to pay off your credit card debt.
Large Balance with a High Interest Rate
A high balance on a single card that has a very high rate of interest is a reason why people make balance transfer. It is common to see credit card offers that offer 0 percent interest for a particular amount of time, typically between 6 and 12 months however often, it’s even 18 months.
After the initial period after which the interest rate is likely to rise. If you don’t complete the transfer in full at the time that the initial APR is over the balance will be liable for the interest for the balance that hasn’t been paid.
Let’s imagine you transfer $1,000 to the balance transfer credit card that has an intro APR of 0% of 12 months. In the 12 months, you pay a portion of the total amount and leave an outstanding balance of $500. If the rate actually charged by the card is 15%, you’ll be liable for the percentage of the balance remaining or $75.
Understanding Deferred Interest
A major mistake that many people make is confusing the deferred-interest balance transfer offer as a 0% rate. On the surface they appear identical. However in the event that you have a balance on a deferred rate your balance will be higher since it’s calculated based on entire amount of the initial amount transferred.
In the same way as previously, let’s say you’ve transferred $1000 into the credit card that has delayed interest for 12 months. In the 12 months, you pay $999 and leave with a balance of $1. If the cost is 15%, you’ll be charged $150 on the amount you transferred prior to even though you’ve paid most of the charge.
This is a significantly more substantial amount that could erase any gains you gained through the transfer of the balance. Your interest may even be more than the amount you paid for the card you had previously when you include the interest in the annual fee and transfer fee. Be sure to take into consideration all the costs involved in the transfer prior making an investment.
Do you need to make monthly payments using an 0% balance transfer?
If you are able to transfer the balance onto credit card that has no APR, for a certain period of time, it means you don’t pay any interest over the period of promotional. However, it doesn’t mean that you do not have to pay any fees. Just like all credit cards the minimum monthly payment is required.
The average is about 4%, but it could vary based on the bank you use. The problem is that should the company that you use for credit is notified of an late payment even by one day in some instances they could end your initial APR. From then from then, you’ll need to cover the full amount of interest, and the initial period of time is over.
In addition to increasing your rate of interest as well as late fees, it could result in a decrease in your credit score overall. This could affect the rates of interest on credit cards as well as loans, and could impact your ability to purchase a home or rent an apartment or purchase a car. It is crucial, particularly with the introductory balance transfer card offers to pay all your bills in full.
Paying Off the Entire Amount
In the best case scenario you’d sign up for a balance transfer card that has an intro APR of 0% with a credit limit. The balance would then be transferred of a credit card that have an increased rate and then pay the total amount before the promotion ends. This means you have to pay a lot more than the standard minimum of 4% that you’re required to make, yet you get maximum benefit from the balance transfer.
Let’s take a look at an example where you transfer the balance of your credit card $1,500 from an existing card that has an 18.9 rate of interest to a credit card with an intro APR of 0% for 18 months. It would take seven years before you could pay the balance off at an 18.9 percent rate when you just made minimum payment. Plus, you’d be paying more than 800 dollars in interest.
Making a switch to a new credit card that has no interest for a period of 18 months is an effective way to save cash. If you only make the minimum payment it will take five years before you reach zero balance. Also, this doesn’t contain the balance transfer charge or the annual fee that you must pay.
In this case, your monthly cost is $83.33. Even with the 3percent fee for balance transfers and an annual cost, this amount is significantly lower than the amount you would pay off on your original card within the same time.
What if you are unable to find a 0% balance transfer offer?
A zero percent discount isn’t the sole reason for you to move your balance. Branded store credit cards such as furniture or clothing stores can offer higher rates of interest than traditional credit cards from banks. The majority of branded cards have rates of interest that range between 21% and 33 percent.
Transferring this debt to a conventional credit card can reduce the interest rate considerably and sometimes as just 13 percent. You’ll probably have to pay a balance transfer charge however, it’s important to remember that this can be negotiated. If the bank is aware that you’ll be required to pay for interest on the loan amount for the duration of the loan it’s more likely to think about reduction or elimination of the fee.
Another reason why people opt to transfer balances is to decrease the amount of institutions to which they have debts. Monitoring payment dates on several credit cards could result in penalty charges, late payments and even fees.
Transferring multiple balances to one account can ease the burden the burden of paying for multiple bills. Even if you don’t earn any interest, it’s a factor to be considered when considering the possibility of transferring balances.
Does transferring a balance lower your credit score?
The transfer of your balance to a zero percent interest or low-interest credit card is likely to not impact the credit score. It is possible to take a temporary loss but over the long term it will actually boost the score.
Credit reporting agencies such as TransUnion, Equifax, and Experian employ a variety of variables in determining your creditworthiness. One of them is the amount of credit you’re able to get.
If you apply for a new credit card and then transfer the balance to it there’s a good chance you have an open credit line that is linked to the old account. If you don’t close the previous account, the balance will stay in your credit report. It can have a positive impact on your credit score because it reduces the credit utilization ratio.
However credit card issuers might be concerned if you make multiple balance transfers using the same credit card. You may want to think about opening a different balance transfer at 0% APR card if you are unable to pay off the entire balance prior to the expiration of the introductory period. You’ll have an additional 12 months to pay the balance off.
FAQs
How does a balance transfer work?
For a balance transfer to transfer balances, you must make a request to transfer the balance by the card issuer you have changed to which will then pay the balance on your previous card. You’ll then be obligated to the new issuer the same balance but at a lesser interest rate. You’ll also be accountable for any fees associated with the transfer that are associated with the transaction.
What exactly is a balance transfer credit card?
A balance transfer credit card can be described as a kind of credit card which permits users to transfer their balance from one card to another. A balance transfer on this kind of card typically will require a one-time fee and generally, there is an initial promotional period of 0 percent charge on the balance you transfer. Once the promotional time expires the regular interest rate will be applied.
What are the advantages of a balance transfer card?
The primary benefit of the balance transfer card is that it will aid you in paying off debt faster through the low interest rate. In addition balance transfer cards can save you cash on interest costs and assist you in managing your debt better.
Is there a fee for balance transfer credit cards?
Most balance transfer cards be charged a fee for them. The fee is usually an amount of the balance you’re transferring, and can vary from 0 percent to 3 percent.
Bottom Line
Making a balance transfer from one card to a different, particularly one with a lower transfer rate could significantly reduce the amount of your monthly payments. It will aid you to to pay down your debts quicker and even avoid the interest charges when you pay off the debt within the timeframe you are given.
It’s a good idea to compare plans and more important to understand the conditions and terms. A 6 or 12-month plan might be more advantageous than an 18-month one if the costs are lower.
Don’t choose a credit card with the highest APR. Instead, ensure you are aware of the exact amount you’ll be paying for the duration of the plan. Avoid these mistakes and you can save yourself a significant amount of money. However, you should choose a plan not for you and you may end up paying much more than you anticipated.
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