Balance transfer credit cards are an excellent tool for managing your personal finances and credit card debt. They are widely available and offered by a variety of banks. However, before you submit your application for balance transfer credit cards, there are seven things you need to know about these accounts.
1. You Need Good Credit
Already having a credit card in your name does not guarantee that you'll be approved for balance transfer credit cards. When you submit your application, the bank will check your credit history and determine whether you meet their requirements for a credit card. To increase your chances of an approval, make sure you pay your bills on time and maintain a good credit score.
2. Simplifies Your Debt
If you have multiple credit cards, it might be difficult to keep up with your different due dates and payment amounts. With balance transfer credit cards, you can move all of your credit card balances to one card, and only worry about managing one account each month. With only one account, you're less likely to forget about a due date.
3. Often Results in a Lower Interest Rate
If you transfer your credit card balances to a new card, there's a chance that you will enjoy a lower interest rate. With a lower interest rate, you'll pay fewer interest charges each month. Therefore, it’ll be easier to pay off your credit card balance.
4. You’ll Pay Balance Transfer Fees
Unfortunately, fees are inevitable when transferring your balance. There are credit cards that will transfer your balance at no-cost, but you need to shop around for these cards, and you might pay a higher interest rate. Typically, the fee is 2% to 3% of your transfer balance.
5. The Balance Transfer Rate is Temporary
As an incentive, banks that offer balance transfer cards give a temporary introductory rate of 0%. You might enjoy this low rate for the first six months to 12 months of opening your account. However, after your introductory period, your interest rate will convert to the bank’s standard APR. When applying for a card, make sure you read the fine print to learn the standard APR.
6. Your 0% Rate May Not Apply to Purchases
If your new credit card offers 0% interest on balance transfers, the 0% may or may not apply to new purchases. Therefore, make sure you fully understand the terms of your agreement. If the balance transfer rate does not apply to new purchases, using the credit card for everyday purchases will result in interest charges.
7. You Can Move Other Types of Debt
If you apply and get approved for a balance transfer credit card, balances that you move onto the card are not limited to other credit cards. Depending on the bank that issues your card, you might be able to move other balances, such as the balance from a store charge card, an auto loan and other types of financing. Since you'll likely to receive a 0% interest rate, moving different balances to this card can help you pay off your debts sooner.
When applying for balance transfer credit cards, it is important that you shop around and compare different offers. Banks offer different incentives and it's important that you fully understand the terms to avoid any surprises. Do you think it's wise to transfer a credit card balance to a new card?