Why Do People Apply For Balance Transfers
Balance transfers are one of the most common ways to use credit cards today for a number of reasons. A balance transfer card is designed to let you move an existing card balance from one card to another–most often with a different lender–to take advantage of special interest rates. There are many things to look for when applying for a transfer card, including the promotional period, any fees or an annual fee, and the normal APR once the promotion ends.
Typically, balance transfer credit cards are used by people that find themselves paying too much interest on an existing credit card balance that doesn’t seem to get any smaller. Many people find themselves slowly digging themselves out of piles of debt by using balance transfers and cutting their spending habits completely. Balance transfers can save you a ton of money each month in interest, as well as free up cash by lowering your monthly minimum due.
For example, if you have a $2,000 balance on a card with 30% interest, you’re paying $50 each month in interest and may have a minimum due of $150. If, however, you transfer that entire balance onto a card with a 0% interest promotional period, you’re paying no interest each month and your minimum due could be as low as $50.
There are many things to look for when selecting a good balance transfer card, however. Virtually all of these cards offer a promotional period with 0% or simply start off with a very low rate. To begin with, how long will the promotional period last? Will it be one year or six months? Next, read the terms to find out what your interest rate will be once the period ends. If you know you’ll pay off the balance within the period and know you won’t need or use the card again, this may not be of much concern.
Those transferring a very high balance or anyone that needs a long time to pay off their debt will do well to check the regular APR. Some transfer credit cards will switch from 0% interest to 25% overnight, costing you as much or more than your old card. It’s also important to check for any annual fees, which will eat right into your savings.
Lastly, make sure the card issuer does not charge a fee for transferring your balance or it will remain low, allowing you to still save a significant amount of money. Some card issuers charge a percentage of the balance to transfer, so make sure you calculate how much that will be.
