When credit card balances become unmanageable, one of the first repayment strategies many consumers turn toward is a balance transfer. Transferring a balance onto a new card can be a great way to eliminate debt quickly. However, it can be damaging for individuals who don’cat understand how these cards work.
Balance transfer cards allow individuals to transfer a credit card balance from their current card to a new card that has a lower interest rate. Typically, balance transfer cards may offer a zero percent introductory rate for a period that may last from three months to 24 months. During this period, individuals can make payments on their balance without incurring additional interest charges. The appeal of these cards is that consumers who are not being weighed down by heavy interest charges can put more money toward their balance and pay off their balance more quickly.
However, there are several factors to keep in mind before transferring a balance.
First, consumers should pay close attention to how much they owe and the length of the introductory rate. The goal is to pay off the full balance before the teaser rate ends and the new rate kicks in. For this reason, consumers should examine their balance and calculate how much they would have to put toward their balance each month to pay it off in full before the rate ends. Because some cards have longer intro rates than others, adults should choose one that best compliments their goals.
Second, individuals should make sure they are permitted to transfer the full amount of their balance. Some cards may place a cap on how much individuals can transfer, which can complicate the repayment situation.
Balance transfer cards may also come with fees associated with transferring an amount. The fee may be a certain percentage of the overall balance. This can be costly for individuals who already owe a significant amount, so shop around with several different lenders to seek out a no-fee credit card.
Lastly, consumers should steer clear of making new purchases on a balance transfer credit card. In most cases, the teaser rate only applies to the amount being transferred and new purchases will be subject to the standard credit card.