Did you know the average annual percentage rate (APR) for credit cards is more than 16%?
That means you have to pay an extra 16% on your card balance for every month you don't pay it off in full.
With those numbers, it can seem like managing credit is almost impossible. Luckily, you can take control of your debt and overall finances with a balance transfer.
Read on to learn how it works.
What Is a Balance Transfer?
A balance transfer involves moving your credit card debt from one card to another. If you do this well, it can be an excellent tool for managing credit.
You will need to have good enough credit to qualify for a new credit card. It's also important to consider that some credit cards aren't as useful for balance transfers.
For example, if the new card has the same interest rate as your old one, transferring debt won't make sense. But in other cases, a balance transfer is the best way to help you pay off your debt.
How to Transfer Debt
If you determine that a balance transfer is the best credit management strategy for you, you need to know how to make it happen. A balance transfer itself is relatively easy.
However, you also have to think about how to prepare for that transfer. And you'll need to have a plan for managing credit after the transfer.
Here are a few steps to follow to successfully transfer your debt.
Verify Your Finances
First, you should take a look at your other finances. Consider how much money you have to put towards paying off your debt on the new card.
You don't need to have all of the money in full, so think about how long it will take to earn enough to pay off the debt. Then, you can maximize the amount of money you can save on the transaction.
Some cards may also charge you for the balance transfer. If that's the case, you should budget for the balance transfer fee along with your repayment.
Apply for the Right Card
When it comes to balance transfers, not all credit cards are created equal. Choosing the right card can
have a huge impact on your debt repayment strategy.
You should look for a credit card that has an introductory period with a 0% APR. That way, you won't have to pay interest on the balance as you pay it off on the new card.
Also, avoid credit cards with annual fees since that will only increase the amount of money you owe. And while it may be hard to find, you can look for a card with no balance transfer fee or a low fee to help save money.
Transfer the Debt
Once you apply for a new credit card and the issue accepts you, you will receive your new card. Then, you can initiate a balance transfer to move your debt.
You'll need to contact the new credit card company by phone, or you may be able to use their website. Be sure to have your old credit card on hand so that you can provide the number and other details.
That way, you'll be able to transfer all of your debt to the new card. If your debt is higher than the card's limit, you should transfer as much as you can to save more on debt repayment.
Next, you may need to wait a while before the transfer goes through. The timeline for the transfer depends
on the credit card company, with some transfers taking as long as six weeks.
Fortunately, that's a rare case, so you should be able to transfer the money within two weeks. As you wait for the transfer, make sure to save up money to pay off your debt.
You might also need to save money to cover any interest that accrues on the old card before the transfer. That way, you won't have the debt continue to increase on the old credit card.
Start Making Payments
After the balance hits the new credit card, you can start making payments. If possible, try to pay off as much of the debt as you can within the first month.
Otherwise, plan out your payments so that you can pay off the balance before the introductory period ends. You may not have to pay interest now, but you will at some point.
Make sure you know when the introductory rate will end to help avoid paying too much in interest. If you can't pay off the balance before then, you can at least plan for it and know when you will need to start paying more.
Benefits of a Balance Transfer
Managing credit with a balance transfer isn't for everyone. However, you should know of the advantages that come with moving your debt.
Then, you can make sure the strategy is right for your financial situation. Here are some benefits that come with transferring debt to a new credit card.
Get Out of Debt Sooner
You may be able to get out of credit card debt sooner when you use a new card to pay off the debt. If you get a card with 0% interest, you can pay the same amount you've been paying.
However, your balance isn't going to accrue interest for that period. That means more of your payments will go toward paying back the money you used rather than the interest.
So even if you can't afford to pay the debt back at once, you may be able to save money and pay off your debt more easily. This is also useful if you still have to make payments once interest kicks in since you'll save some amount of money.
Enjoy a Lower Interest Rate
Of course, you can find a credit card that offers 0% interest for the first year or another length of time. That can be amazing when it comes to paying off your debt.
But you may also qualify for a lower interest rate in general. Maybe your current credit card's interest rate is 20%, but you can get
a new card where the interest rate is 10%.
Even after the introductory period ends, you can save a lot of money on your credit card debt. While that doesn't mean you want to get back into debt, it can be useful if you don't pay off your balance in full one month.
Consolidate Credit Card Debt
If you have multiple credit cards with balances consider transferring all of them to a new card. Of course, the new card will need to have a high enough limit for you to do this.
You can also transfer one balance at a time, starting with the card with the highest interest rate. Once you pay that off, you can transfer another balance.
Consolidating debt can make it easier to pay everything off. You'll
only have to pay one bill instead of two, three, or more credit card bills.
Find Better Terms
You might also access better terms and rewards if you open a new credit card. Of course, the new card may have a lower interest rate for the long term.
However, you may find a new card with a lower annual fee or no annual fee. That way, you don't have to pay more money even if you don't let the card accrue debt.
If you open a new card with your bank, making payments can be much easier. All you'll have to do is log into one account and transfer money from your bank account to your credit card to pay off the balance.
Opening a new card can also allow you to access different rewards, such as airline points. Depending on your life, the rewards of a new card may help you save money elsewhere.
Consider what terms and rewards you'd like to get from a credit card. Then, you can apply for the right card for managing credit and debt now and going forward.
Should You Close the Old Credit Card?
After you transfer your balance, you have to consider what to do with your old credit card. It can be tempting to close the card, especially if you think you might go back into debt using it.
However, doing so can harm your credit score.
First, closing a card will lower your total credit limit. That means you can spend the same amount of money, but your credit utilization will increase because it's a percentage of the money you have available to borrow.
Closing a credit card can also decrease the average age of your credit lines. If your credit age decreases, so can your credit score. So try to be as careful as you can and not spend more than you can afford.
Managing Credit Doesn't Have to Be Hard
Whether you're in a little or a lot of credit card debt, you should compare your options for managing credit. Fortunately, you don't have to stick with the same card and the same interest rate.
Instead, consider a balance transfer. That way, you can pay off your credit card debt faster and save a bit of money in the process.
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