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What’s a Credit Card Balance Transfer?

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If you have a credit card with high interest or a credit card with unfavorable terms overall, a credit card balance transfer may be the answer.

balance-transfer-debt

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 this 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 no- or low-interest introductory period.

Usually, introductory periods last from six months to as much as two years.

If you didn’t have excellent credit when you took out your first credit card you may have interest over 20%.

Yikes.

When you have a high interest card, it can take you even longer to repay your debt.

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 0% or low introductory special with a new card.

 

The Good and Bad of a Credit Card Balance Transfer

‘Ze Good

For a certain amount of time, balance transfer cards offer low interest so you can chip away at the principal interest free. 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, you’re paying a lot 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 either. So you can make big purchases you plan to pay off slowly during that time just make sure you crush the balance during the special period.

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.

‘Ze Bad

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.

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

What Are We Doing?

Right now we’re weighing a few options for a balance transfer to pay off a little bit of debt.

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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Taylor K. Gordon is a writer and money blogger. She writes on how to live your best life without going broke.

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