In a Credit Card Pinch? Find Out More About Credit Card Balance Transfers

Are you seeking a miracle to get caught up on credit card debt? Thankfully, you will not need one – a balance transfer might do the trick.

A balance transfer moves debt from one credit card to another. The benefit? Often a promotional 0% APR for a set period once the balance is transferred. The catch? If debt is not paid down over that period, the APR spikes, leaving you in the high-interest situation in which you started.

Credit card interest rates are nearly predatory these days if you carry a balance. It can be easy to fall behind on a credit card payment, making it difficult to overcome the balance plus significant interest repayments if they continue for a long time. Balance transfers are a way to stop the bleeding (interest accumulation) for a period of time to catch up on your total balance.

If you find yourself in this situation, we advise you to keep these three things in mind:

1. Your Credit Score – Most companies will require a credit score of at least 700 to qualify for their best transfer offers. If your score is not there yet, do not panic – we have other strategies we can use to raise your score prior to applying for a balance transfer.

2. Balance Transfer Fees – Some companies may require a 3-5% fee of the dollar amount being transferred. This fee would be added to your existing balance after the transfer. While a 3% fee is still cheaper than continuing to pay your current credit card’s APR, there are often promotional balance transfer deals that offer no transfer fee at all.

3. Other Hidden Fees – There always seems to be a hidden fee somewhere in a financial product. For balance transfers, there are two common hidden fees to be aware of:

1. 1. a. The first hidden fee is interest on new purchases. A common misconception is that any balance carried on your card is interest free within the promotional period. However, only the balance that was transferred is subject to these terms. Any other charges to the card post-transfer are subject to normal payments plus interest. Additionally, when using a balance transfer, you often forgo the payment grace period, so make sure you remain current on all new credit expenses.

      b. The second hidden fee is retroactive interest accumulation. If you are unable to pay your transfer balance at the end of the promotional period, some companies will retroactively charge you interest for that entire promotional period as if it were accumulating all along. This provision is less common, but it is a good reason to read all the transfer terms closely.

      All things considered; balance transfers have their purpose. They behave like an interest free short-term loan for people who need time to catch up on their credit balances. That said, you want to avoid being in a position where such a product is necessary.

      Questions regarding balance transfers, credit cards, and beyond? We are here to help – contact us for more information