A credit card balance transfer involves the transferring of an outstanding credit card debt, or outstanding credit card balance, from one credit card (Card 1) to another credit card (Card 2). Balance transfer can be a very effective tool in reducing existing debt and also in reducing any future debt.
Shop around for a credit card that has a lower interest rate than your existing card. By securing a lower interest rate on your existing credit card debt, you can reduce the total amount you will have to spend to pay off your balance.
While this can be a very efficient way to save money, be certain to thoroughly read and completely understand the often complicated terms of your new credit card`s balance transfer agreement. Sometimes the fine print can be confusing, or even misleading, at first glance. If necessary, seek advice from a financial professional so that you don`t end up being unpleasantly surprised by the misunderstood details of your new credit card`s terms. In the balance transfer game mistakes can be quite costly.
One of the most important detailed items to closely examine is your new credit card`s interest rate. Many banks offer introductory interest rates on balance transfers that are lower than their standard rates. They do this in order to entice people to transfer their balances. By law, U.S. banks are required to maintain the introductory interest rate for a minimum of six months.
Some banks will maintain the stated rate for an extended, specific period of time; for instance, one year from the date you first transfer your balance. After this initial, pre-stated time period, pay attention to how much the interest rate will go up. A significant increase in the interest rate after the introductory period may be cause for concern. Think carefully before selecting the right card for your particular situation.
Almost always, the banks will charge a balance transfer fee, which is either a percentage of the total amount of debt transferred or rather a simple flat-fee charge. If a bank states that they will charge 2% to transfer your balance and you intend to transfer $5,000, your transfer fee would cost $100. Some banks may state that they will charge a $300 flat-fee, whether you intend to transfer $250, $5,000, or $40,000.
Some banks will also charge penalty fees if you neglect to pay off your transferred balance within a given amount of time. Make note of how these fees are calculated. Is the bank going to charge you an exorbitant amount if you do not pay off the entire balance within one month? This might not be a problem if you`re transferring a small amount of debt, but if your debt is significant, this may be an impossible feat.
In addition, as with all credit cards, if you miss a payment, you will be charged a late fee. Pay attention to this detail. Some cards actually have the right to raise your interest rate permanently if you miss one payment, even by just one day. This is something to be taken into account when shopping around for a card.
In some cases, you may want to transfer your balance, pay it off as quickly as possible and then cancel the new credit card. Make sure that you have the right to do this, without some sort of penalty fees.
Add up the total costs included with your balance transfer and shop around to find the card that has the best interest rate and lowest fees for your specific situation. Not every deal works for every debt. What works for balance transfer may not work for Mortgages. Do your research. Your rate of repayment and the amount of money you are transferring should dictate which credit card agreement will work best for you.