Balance Transfer Credit Cards
If you have run up some balances on some high rate interest credit cards and you want to reduce them, you can:
- Pay the balance off
- Pay more than the minimum amount
- Transfer the balance
If you decide to transfer the balance, shop around for the lowest balance transfer credit card rates.
How Balance Transfers Work
This the way balance transfer credit cards work. Let’s use an example of $1,500 that you want to transfer. It’s currently on a card that carries a 15.99% interest rate. The reasons you might transfer that balance to a new card are:
- There is no annual fee
- The interest rate is 0% for one year
- Other features such as car rental insurance are available
Regarding the interest rate—you could place that $1,500 on that card and clear it in one year by paying $125 per month. However, if you paid $125 per month on the 15.99% interest rate, it would take you 14 months. You will have paid an extra $250 or about 17% of the balance to pay off the $1,500.
A balance transfer credit card sounds good and it is. However, keep a couple of things in mind. If you pay late you will be charged a fee. Plus, the 0% interest rate will more likely than not disappear and the balance will be subject to the prevailing card interest rate.
It may also be tough to avoid making more purchase on this card. This could put you right back in the same financial trap. So, you have to be disciplined.
Check the card to see if they charge a balance transfer fee. Depending on the balance, most credit card companies do that.
Advantages of this method reducing debt are obvious:
- It helps you take control of your finances.
- You can save a substantial amount of money.
- With discipline, you can reduce your debt quite painlessly.
Research and compare credit card rates to find the best balance transfer card for your situation. Some cards offer as much as 18 months to pay back the balances are the low rate.
They do that, of course, because the companies are banking on the fact that you will use the card for other purchases at the prevailing rate of the card. Another thing to keep in mind is that these cards are not issued to just anyone. You need to have a good or excellent credit history to get a 0% interest balance transfer credit c