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How to use a balance transfer to pay off debt– The average American is a slave to their debt. It’s sad, but it’s true.
I’ve seen it all around me – people chasing things they can’t afford. From expensive cars, like Lamborghinis, to million-dollar watches.
The truth is: people are drowning in their debt and they need saving.
But how exactly can you get rid of debt faster and more efficiently?
Well, beyond the actual act of paying it off, there’s something that you can do right now to immediately decrease your rates and save you money in the long run.
Introducing to you: a balance transfer.
A balance transfer allows you to move debt from one account (a credit card or loan) to another.
Why are they so great? Moving high-interest debt to a credit card with 0% APR could save you TONS of money.
And even better news: if you’ve got a good credit score, you likely already qualify!
Here’s what you need to know:
Related: How Moms Can Start Paying Off Debt
What is a Balance Transfer?
A balance transfer is when someone moves debt, or a “balance”, from one account to another.
In most cases, this means moving a balance from an older credit card to a newer one, which is most often issued by another company.
People perform balance transfers because they are beneficial for:
- simplifying payments
- getting lower interest rates
- saving money
But how exactly do they do that? More on that later.
How a Balance Transfer Can Save You Money
The main reason to perform a balance transfer is to reduce the interest rate on credit card debt.
This is important because less interest means that more of your payments will go towards the principal, thus enabling you to pay off you credit card debt faster than otherwise possible.
However, credit card companies can offer other incentives as well. For example, it is very common for them to offer either no interest or even further reduced interest for a limited time.
Likewise, they might offer points for their rewards program.
Related: How Credit Cards Work: Interest, Minimum Payments, Grace Periods and More!
How Does a Balance Transfer Work?
People perform a balance transfer by using the credit card that they are planning to move the balance to.
Once you have entered the information for the credit card that you are planning to move the balance from, you can transfer an amount of your choosing.
Effectively, this figure is paid off on one credit card before being incurred on the other credit card.
How to Apply and Take Advantage of a Balance Transfer
Here’s how you can benefit from a balance transfer (hint: it’s easier than you think!):
1. Check your Balance and Interest Rate
For starters, if you want to use a balance transfer to pay off debt, you’ll need to know basic information such as your balance, your interest rate that is currently being charged, and the interest rate that could be charged.
Use this to calculate what you can expect to pay using the two credit cards. If you could be paying less, you can benefit by performing the balance transfer.
Here is an awesome calculator to see if a balance transfer makes sense for you.
2. Read the Fine Print of All Balance Transfer Card Offers
Credit card companies offer balance transfers because they want to make money. As a result, this feature can come with a wide range of conditions that must be met before its benefits kick in.
Due to this, you’ll need to read the fine print because you could wind up paying more than you did before if you fail to do so.
Unfortunately, I have made the mistake of not reading the fine print when making important money-decisions. You’d be surprised how many hidden fees can hide in that tiny ink.
So learn from my mistakes and be sure to avoid:
- penalty APRs
- surprise interest charges
- extra fees
Be sure to do your research, as these things can really add up!
3. Pick a Card that is Right for You
Some people move their balance to a credit card that they already have.
However, it is important to note that a lot of credit card companies encourage potential clients to sign up for their credit cards by offering very attractive money-saving offers.
Make sure to look up these credit cards and be sure that these credit cards have other features that are suitable for your particular needs and preferences.
Make sure that your card has:
- manageable interest rates
- a credit limit that suits your needs
- valuable incentives
4. Apply for the New Balance Transfer Card
Once you have chosen a preferred credit card out of the choices that are available to them, you will need to apply for it.
Be warned you will need to meet the requirements, whether that means a certain annual income, a certain credit score, and other potential conditions.
Related: 27 Insane Credit Score Myths Debunked: Be On Your Way to a Better Credit Score this Year
5. Call Your New Card Company to Complete the Transfer
If you want to perform a balance transfer, you can do so by calling your credit card company. This is a particularly good idea if you still have some questions about the process and want to ask a human representative.
However, it tends to be very easy to perform a balance transfer using an online account, so that is a good option as well.
6. Stop Using Your Credit Cards
Some people have been known to start a spending spree once their balance has been transferred.
This will put you in a poorer financial position because you will have to pay more interest on more credit card debt.
Something that can be particularly painful if you have chosen
a credit card that offers either no interest or low interest on transferred balances for a limited time.
7. Start Paying Off Your New Card As Fast As Possible
Even if you don’t want to pay off your entire balance, you should still pay off as much of it as possible as fast as possible.
No interest or low interest means that more of your payments will be used to reduce the principal, thus making for less interest in the future.
Is a Balance Transfer Right For You? Here Are Things to
Consider
If you want to pay off debt by using a balance transfer, note that balance transfers are not always a good idea. Here are some factors that you should consider:
1. Must Have a Good Credit Score
Good credit scores mean good creditworthiness, which in turn, means much easier access to the best financial products.
This includes the most attractive credit cards with the most attractive interest rates as well as balance transfers.
If people don’t have a good credit score, they should spend a few months making their payments on time, paying down their balances, and improving their creditworthiness before looking into balance transfers.
Related: Secrets of People Who Have Excellent Credit: Improve Your Credit Score Today
2. Must Have a Solid Debt Pay Off Plan
The most effective use of balance transfers happens when people use the no interest or low interest to pay off as much of their credit card debt as possible.
Due to this, it is important to have a good plan for how you are going to go about doing this.
At a bare minimum, you should have concrete numbers for how you can benefit as well as how you can gain access to the potential benefits.
Related:Snowball vs Avalanche: Which is the Fastest Way to Get Out of Debt?
3. Must be Prepared for Obstacles
On a related note, debt payoff plans should always have some room for error. No one can predict the future with perfect certainty, meaning that interested individuals should be prepared for unexpected problems to pop up.
There is always the possibility that you may forget to make a payment or not have the budget to pay for that month’s balance.
It’s also likely that your credit card may have some hidden fees or
drawbacks that you may have missed in the fine print.
You don’t need to be prepared for absolutely everything, but you should have at least some measures in place in case their plan gets thrown off-course by sudden expenses.
I recommend getting ahead on credit card payments in the event that such an emergency does happen, such as losing your job or (cough cough) a worldwide pandemic.
Being ahead on payments by at least 3 months is ideal, but I recommend working towards having at least 6 covered.
It’ll give you invaluable peace of mind.
Related: How to Catch Up When You Are Behind on Bills
4. Must Have Control to Not Use More Credit
Spending discipline is a must when it comes to balance transfers. Remember: you’re trying to get out of debt, not dig yourself deeper into it.
If you can’t prevent yourself from using paid-off credit cards, it may be a better idea to avoid balance transfers altogether. You may end up with more debt.
Final Thoughts
If your high-interest debt is eating you alive, a balance transfer may be right for you. Not only is a balance transfer beneficial for getting a lower interest rate, but it can also help you simplify your payments and save you money in the long run.
Of course, when transferring to another account, it’s important to be careful of what you’re signing.
Read the fine print and be wary of extra fees and other drawbacks.
Using a balance transfer to pay off debt, you’ll be saving in no time!
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