It is a challenge to pay off high balances on a revolving term credit card account. If you have a high-interest rate on an account with a high outstanding balance, you may be looking for a significant form of debt relief that can help you to make your payments easier or to reduce the debt faster. Some experts may recommend that you use a balance transfer credit card. If you are asking what is a balance transfer credit card, you may be pleased to learn that this financial solution can provide you with the relief you seek in some cases.
What Is a Balance Transfer Credit Card?
Before you apply for a new credit card, it is important that you understand what is a balance transfer credit card and how can it be used. With most types of credit cards, you can transfer a balance from another account to it.
This means that virtually any of your credit card accounts can be used as a balance transfer credit card, or you can open a new account that is used specifically for this purpose.
However, the purpose of a balance transfer credit card is to lower your interest rate. With a lower interest rate on your debt balance, more of your monthly payments will go toward principal reduction. In addition, your monthly payments may also be lower, and this can help you to better manage a tight budget.
With this in mind, the best balance transfer credit card is one that has a lower interest rate than what you currently have on your outstanding balances. You also need to ensure that the account allows you to transfer the entire balance that you need to transfer.
Some accounts have a transfer limit. Therefore, for example, while you may have $2,000 in outstanding credit available on the account, the card may limit you to a maximum balance transfer of $1,000.
After you transfer your balance to your new account, you may consider closing your high-interest credit card account. This can prevent you from using the account to make additional charges and to fall deeper into debt.
A balance transfer can be an excellent resource for you to use to get back on track financially, but it can also be misused and abused.
For example, if you transfer your balance to a new account and charge the existing account back up, you could find yourself quickly carrying twice the debt that you previously had. This has happened to many people, and the result can be disastrous.
When you ask what is a balance transfer credit card, you should be aware that many credit card accounts have special offers for transfers. For example, they may have a low introductory rate on balances transferred from other credit cards for six months, but the rate could revert to a higher level later.
In addition, there may be a balance transfer fee. Some credit cards also limit you on the amount of reward points you can earn on transfers. All of these factors can play a role in which card you use for your transfer activity and the benefits that you can enjoy from it.
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How to Use Balance Transfer Credit Cards
Find a Great Offer
After you ask what is a balance transfer credit card, you may be ready to find the right deal for your transfer activity. Begin by analyzing your current credit card accounts. Determine if you have any available credit that you can use for this purpose.
If you do, contact the creditor or visit the website to look for balance transfer offers. In some cases, you may need to open a new account to complete a balance transfer.
This process can take several days or weeks to complete, so continue to make your minimum monthly credit card payments as necessary during this period of time.
Learn About Balance Transfer Fees and Introductory Rates
As you compare the options available, pay close attention to interest rates and transfer fees. Many credit card companies have a balance transfer fee. They have a special introductory rate as well, but these figures can vary substantially.
After the introductory rate has passed, the rate may revert to a higher level. Your credit card may have a higher standard rate for balance transfers than for purchases made with the credit card. This means that your monthly payment may actually be much higher than you anticipated.
You can typically ask your credit card company representative to estimate your monthly payment. Usually based on the future interest rate and anticipated balance. This will help you to determine if the transfer is worthwhile.
Some people will transfer funds back and forth between accounts several times per year. While this may be one option to consider, take note that the transfer fees can add up. Therefore, this is not advisable in most situations.
Transfer Your Funds
Completing a balance transfer sounds complicated, but it usually is a fast and easy process. You can most easily accomplish this task by calling the credit card company that you want to transfer funds to.
The representative will process the request for you. You will need to have the account numbers and exact balance amounts that you want to transfer available. Make a list of all accounts that you want to transfer to your credit card before making the phone call.
This will facilitate the process so that the transfer can be completed with minimal stress or hassle. Some companies will send you promotional checks that you can write to complete the balance transfer without a phone call. Or you may be able to complete the transfer online.
Follow a Strict Repayment Schedule
With most low introductory transfer offers, it will require you to make your minimum monthly credit card payment on time. If you fail to do so, the interest rate may immediately revert to a higher level. And you will lose the benefit associated with the transfer.
This may occur if you are even one day late. It is wise to set up an automated payment through your bank account that covers more than the minimum required payment. Then, follow up with your bank each month to ensure that the payment gets through.
Because this introductory transfer period involves a lower interest rate, this is a great time to make larger payments and to enjoy more significant debt reduction.
After you ask what is a balance transfer credit card and learn how to maximize the benefit that it can provide to you, you may be ready to start transferring balances. The right credit card can be used strategically to improve your financial situation through incredible debt reduction.
However, you do need to take the time to find the best offer available. And also follow a strict repayment schedule to fully benefit from this option. By following these tips, you can take full advantage of a balance transfer credit card offer.