BALANCE TRANSFER CREDIT CARDS FOR DEBT RELIEF: Balance transfer credit cards can be an effective solution for people struggling with debt. These cards offer the option to transfer high-interest credit card debt to a card with a lower interest rate, which can save hundreds or even thousands of dollars in interest charges. In this blog, we’ll explore what balance transfer credit cards are, how they work, how to do Balance transfer credit cards for debt relief and what to look for when choosing a debt relief card.
Table of Contents
What Are Balance Transfer Credit Cards?
Balance transfer credit cards are a type of credit card that allows you to transfer the balance from one or more credit cards with a high-interest rate to a new card with a lower interest rate. This can be a great way to save money on interest charges and simplify the process of paying off multiple debts.
Weigh Your Options – Balance Transfer Credit Cards For Debt Relief
Since you’re looking at debt relief methods, chances are you already know that a balance transfer isn’t your only option. Before you begin the process, explore other debt-relief options such as debt management programs, debt settlement, and debt consolidation loans.
If you’re tempted to transfer funds, ask yourself these questions before you get started:
- Is the balance I want to transfer less than $5,000?
- Is my credit good or excellent?
- Can I pay the full amount of the transfer at the end of the 0% APR period?
If you can answer “yes” to all these questions, a bank transfer may be the best option. With credit card debt over $5,000, a debt management program may be better. If you have bad credit, the settlement may be a reasonable option. It all depends on your situation and what you can afford.
How Do Balance Transfer Credit Cards For Debt Relief work?
When you transfer a balance from a high-interest credit card to a balance transfer card, you’re essentially paying off that debt with a new card with a lower interest rate. With this lower rate, you can pay off your debt faster and less money goes to interest costs.
Most balance transfer credit cards offer an introductory interest rate of 0% for a set period, usually 6-18 months. After the initial period, interest will increase to the card’s standard rate. It is important to note that balance transfer credit cards often have a balance transfer fee, usually 3% to 5% of the amount transferred, which can quickly add up.
What To Look For In A Balance Transfer Credit Cards For Debt Relief?
When choosing a balance transfer credit card for debt relief, it is essential to consider the following factors:
Introductory Interest – The length and amount of the introductory interest greatly affect how much you can save on interest charges. Choose a card with a low introductory rate that will last long enough to pay off your debt.
Balance Transfer Fees – Make sure you choose a card with a low balance transfer fee, as this can quickly add up and offset any savings you may have made from a lower interest rate.
Default interest rate – After the introductory period, the default interest rate will apply to any remaining balance. Make sure the default interest rate is reasonable so you don’t pay more interest charges than expected.
Rewards Program – Some Balance transfer credit cards for debt relief also offer rewards programs, such as cashback or points for purchases. While this can be a huge bonus, make sure you prioritize paying down your debt and don’t get distracted by the rewards.
Fine Print – Read the fine print on any balance transfer credit cards for debt relief you’re considering. Make sure you understand any hidden charges or terms that may affect your ability to pay off your debt effectively.
How To Do Balance Transfer Credit Cards For Debt Relief: Step-by-Step Guide
Step 1: Evaluate your debt.
How much debt do you want to transfer? Evaluate your debt and budget to organize all your finances. It’s especially important to budget your monthly debt payments since the last thing you want to do when paying off a balance transfer card is pile up more debt on other credit cards.
Step 2 – Choose and apply for a balance transfer card.
Once you’ve got all your financial ducks lined up and how much of your balance you want to put on the balance transfer card, it’s time to choose a card to apply for. Do some research on the best cards. Look for one that emphasizes a long promotional period with 0% APR. The longer this period is, the more time you have to pay off your debt without additional interest.
NOTE: Make sure you can transfer all your existing balances to the new card. Some credit providers do not allow transfers to their balance transfer cards.
Step 3 – Transfer your balance to the new card.
Once you’ve chosen your card and your application has been accepted, you can start transferring your funds. This process depends on the credit card company you got the card from.
NOTE: Most companies charge a fee for transferring balances. This is usually 3-5% of the total balance with a minimum of $5-$10.
Step 4: Pay off your balance transfer card debt.
The final step in this process is paying off your debt! Keep track of your monthly payments, which should be included in your regular budget. Consider setting up an automatic payment plan to avoid falling behind.
5 Keys To Successfully Transfer Balances To Consolidate Debt
A balance transfer credit card is a tool you can use to consolidate debt under the right circumstances. Beware though! Using a balance transfer in the wrong financial circumstances can make your debt challenges worse instead of better. With that in mind, make sure you understand these five points before you decide to apply for a balance transfer credit card.
Always aim for 0% APR
One of the main goals of debt consolidation is to reduce the interest applied to your debt as much as possible. This allows you to pay off the debt you owe (principal), rather than using most of your payments to pay off the accrued monthly interest charges.
The main advantage of using a balance transfer credit card for debt consolidation is that having a good credit score can make you eligible for 0% APR for an introductory period. This means that 100% of every payment you make is spent on eliminating principal, so you can eliminate debt quickly.
If you can’t qualify for 0% APR because you don’t have strong enough credit, you’re usually better off with another consolidation option.
The longer the introductory period, the better
Your goal with a balance transfer consolidation strategy is to eliminate debt before the introductory period ends. This means you want to aim for as long an introductory period as possible, so you have more months to pay off the debt before the standard rate kicks in.
Keep in mind that the shorter your introductory period, the higher the payouts will need to be to achieve Tip #3 below!
Divide the debt by the number of months at 0% APR
As mentioned above, when consolidating with a balance transfer, your goal is to pay off all debts within the introductory period before the 0% APR period ends. Once you do, the interest could be as high as 20% or more. In other words, you effectively lose the balance transfer benefit once the default interest rate is applied.
With that in mind, if you have $5,000 in debt to pay off in an 18-month introductory period, your payments should be $278 per month, regardless of what the minimum payment requirement says. This is why balance transfers have only limited viability as a consolidation solution. If you have too much debt, such as $25,000, your monthly payments should be $1,389 to pay off your debt before the introductory period ends. In most cases, it would be too much for your budget, so you are better off with another debt solution.
Watch out for balance transfer fees
Almost all balance transfer cards charge a fee for each balance you transfer. Depending on the credit card you choose, this can range from 3-5% of each transferred balance. Minimum fees typically range from $5 to $10. This means that the fees can significantly increase the amount of debt you have to pay off.
If you have a card with a 3% transfer fee, the cost for that $5,000 balance is about $150. That means your monthly payments should be about $286 instead of $278 to pay off the balance in full within the promotional rate of 0% APR for 18 months.
Stop spending on your other credit cards
One of the biggest mistakes people make when consolidating their debt is that they don’t stop spending on credit once they’re consolidated. When you transfer balances to the new card, your other accounts will have zero balances. It can be tempting to take out the plastic to make the desired purchase or earn rewards again.
However, you must commit to eliminating your debt rather than adding to it. You should stop charging your high-interest credit cards until the consolidated debt is eliminated. Otherwise, you may be making your debt situation worse instead of better.
Conclusion – Balance Transfer Credit Cards For Debt Relief
In conclusion, balance transfer credit cards can be a powerful debt relief tool. By transferring high-interest credit card debt to a card with a lower interest rate, you can save hundreds or even thousands of dollars in interest charges and pay off your debt faster. Just be sure to choose a card that offers a low introductory interest rate, a low transfer fee, a reasonable default interest rate, and clear terms and conditions.