What’s a Credit Card Balance Transfer?
Isn’t it funny how debt works?
I paid off my student loan this time last year. Yay! But then we had some unexpected expenses like our cat’s emergency surgery, some car trouble and others I haven’t even written about. Seriously, surprise pain in the butt expenses have been a reoccurring theme here on this blog.
Now, it feels like overnight we have credit card debt to pay off. Ugh!
We’re well on our way to paying off two credit cards by the Fall. One of them which is home to our cat bill has 0% interest for 15 months which ends at the end of the summer.
Can’t lie, it’s a sweet deal.
The other card has not so great interest… boo. So, we’re considering a credit card balance transfer to switch into debt repayment high gear.
What the Heck is a Balance Transfer?
If you don’t know what a balance transfer is, no worries. Seriously. I didn’t know the ins and outs of a balance transfer until the beginning of the year.
A balance transfer is when you take a balance you have on a high interest card and move it to a credit card that’s offering a free or low interest introductory period, like our vet bill card.
Usually introductory periods last from 6 months to as much as 2 years.
If you didn’t have excellent credit when you took out your first credit card you may have interest over 20%. Yikes. But the good news is, if you’ve built a strong credit history in recent months or years you may be able to qualify for a low introductory special with a new card.
Perfect example… My husband is not yet a U.S. citizen and a few years ago he had no credit history. So, when he took out his first credit card the company was cautious. They gave him a charge card with high interest and a limit that kept increasing as he proved that he had the capability to pay his bills on time.
Fast forward a few years and now he has the credit history for a regular card with lower interest. So for us, it’s time to move forward.
Pushing on my friend!
The Good and Bad of a Credit Card Balance Transfer
For a certain amount of time there’s no interest so you can chip away at the principal. That’s a clear pro in my book. Principal is the amount that you actually used to make purchases.
Whereas interest is the amount they’re tacking on for allowing you to borrow from them. If you have high interest, over 20% your paying a lot of interest before you even TOUCH the principal. Not fun.
Another benefit is some cards that have balance transfer deals will allow you to make new purchases during the introductory period with little or no interest too. So if you’re planning on making a big purchase you can pay off during introductory you can take advantage of no interest.
Let me repeat, if you’re planning on making a big purchase that you can pay off. Don’t go and put more debt on your balance transfer card that you can’t afford. That defeats the purpose.
Lastly, say you have a ton of credit card debt that’s impossible to pay-in-full within the introductory period…. You can choose a credit card offering the lowest interest at first and then transfer your balance to another low interest card at the end of the introductory period. Move your debt around until it’s paid off to save on interest.
Really you can play the system. Just be careful. Every time you apply for new cards it’ll appear on your credit history. You may seem less creditworthy if you’re about to buy let’s say a house and you have a bunch of inquiries for credit cards. But if debt repayment is your main concern, this is a viable option.
Sure, there’s some bad with balance transfers. But if you play your cards right you can just sail smoothly into debt repayment heaven.
First, the reason that banks offer a free introductory period isn’t because they like you. Nope. They want your business. Offering you a special deal up front takes you away from the competition and puts you right in their lap.
Banks are also hoping you’ll mess up during the special period. You may assume you’ll be able to pay off your balance within the free interest period, but when the time comes you may not be able to. Don’t let that happen to you.
Another thing to note, if you don’t repay your balance before the grace period ends, some companies will charge you back interest from the beginning of your transfer. For instance, the credit card we’re using to repay our cat bill will charge us back interest for the entire year if we don’t pay up by August 15.
Right now the interest totals $500. Yea, I’ll be damned if that happens.
Lastly, some credit cards charge a fee for transferring your balance. Most often the credit cards that offer 0% interest during the introductory period hit you with a transfer fee. However depending on the interest of your current credit card, the fee may be well worth the benefit of no interest.
How to Transfer Your Balance “Like a Boss…Uhh”
Feelin’ my Rick Ross impression? I knew you would.
So as you can see, there are some downsides of balance transfers if you don’t handle your business. Here are some tips to make a balance transfer work in your favor:
- Be strategic. Have a plan from the very beginning of your balance transfer. If you have so much debt that you can’t possibly pay it within introductory decide what you want to do after. You can choose another card to transfer your balance to or ensure the card you transfer to has relatively low interest after the special and doesn’t charge retroactive interest.
- Don’t make frivolous new purchases. You shouldn’t party like it’s your birthday on the card you transfer your balance to even if it doesn’t charge interest on your new purchases right away. Why? Because that may hinder you from being able to pay your old debt within the introductory period. Duh. Be intentional with your spending.
- Establish a payment plan. Do not go into an introductory period thinking you have all the time in the world to pay off your balance. Time flies. Before you know it you’ll be in the last few months leading up to the end of your promotional period. And if you can’t make the final payments you’ll have to scramble.
- Read the fine print. Like with any contract, there’s plenty of fine print with credit cards. Do your due diligence and make sure you know what you’re signing up for before you take the plunge. There are plenty of third-party sites that give completely transparent reviews of credit card offerings like Magnify Money, a site I actually write for. When in doubt call up the credit company and grill them on the terms.
What Are We Doing?
Right now we’re weighing a few options for our balance transfer.
Thankfully we’re in a good position to get approved by a few credit card companies with sweet deals because my husband has diligently kept his credit score high and credit history strong.
One of our top choices is the Chase Slate because it has a 15 month balance transfer period, no transfer fee and 0% interest. But that’s not to say it’s the best option for your unique debt situation. Take a look at the market before making a decision and make sure you understand the conditions of the transfer in and out before taking the leap.
(Update: We chose the Chase Slate card 🙂 , find out more about it here.)
Have you done a balance transfer? What’s been your experience and would you transfer a balance again?
— This post or page may contain affiliate links. Don’t worry, though. I only promote products that I’ve used or truly believe in.
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