Using Balance Transfers for Debt Relief

Chances are that you may be one of the many, many individuals to find yourself with credit card debt. It is easier to obtain credit cards nowadays than it ever has been before, so it is no wonder that sometimes people charge up more than they can afford to immediately pay.

There are various methods by which one may relieve himself of credit card debt, and utilizing a balance transfer is one relatively simple way.

Balance Transfers

First things first: what is a balance transfer? It simply is the act of paying off one credit card by transferring your due balance to a new credit card. By doing so carefully, borrowers can take advantage of a lower interest rate, can make smaller monthly payments, and can pay off their debts sooner.

If you owe a large balance on a credit card with a traditional interest rate (around 16%) or higher, then you might explore your balance transfer options. In today’s financial environment, there are many credit cards that are offered with a special low introductory interest rate. While you might be hesitant about such great sounding offers, they actually are exactly what you should be looking for if you would like to transfer your balance.

The credit card industry is so competitive that companies must do whatever they can to get your business. Therefore, completely legitimate and trustworthy companies often offer low rates such as 2%, 1%, or even zero percent interest for a certain period of time. Such rates usually are granted for six months, nine months, or one year after sign-up.

By transferring your balance to a card with one of these especially low rates, you will save valuable money in interest fees and may be able to pay off your balance much more quickly than you would be able to otherwise. Ideally, you want to pay off your entire balance before the end of the low-rate introductory period. If this is not possible, however, then you actually could transfer your balance to a new card once again.

Know the Facts

Before deciding to sign up for a new credit card to take advantage of the low introductory rate, however, you have much fine print to read and many questions to ask:

• What does the interest rate rise to after the introductory period?

• Does the low introductory rate apply to everything, or just to transferred funds? On many cards, the rate does not apply to new purchases, so anything that you charge in addition to your balance will have a much higher interest rate attached.When this method is utilized, any payments that you make almost certainly will go to pay off your original balance first, so the items with the higher interest rate attached will remain unpaid longer. In this case, do not put charges on your card in addition to your balance transfer.
  

• Is there a fee for the balance transfer? Some cards require a percentage of your balance.

• If there is a balance transfer fee, is there a cap on it? If not, you could end up paying a large fee for a large balance. In fact, some cards even count this fee as a “new charge” that will have a higher interest rate attached.

• Is there an annual fee and/or sign-up fee?

Cross your T’s and Dot your I’s

Seeking debt relief through a balance transfer requires a great deal of diligence for your plan to work out as, well, planned. Upon applying for your new credit card, continue to make at least the minimum payments on your original credit card until the transfer is complete. It often can take as long as a month for the transaction to go through.

After you are accepted for the new card, confirm your interest rate with your lender. Sometimes an individual is accepted for the card but is not eligible for the low introductory rate because of a poor credit score. Unless you make the effort to find out, you could be very surprised come your first bill.

Once the balance is transferred, close your original account. Having more credit cards open than necessary is damaging to your credit score.

Throughout the life of your balance, be sure to make your payments on time. In addition to normal late fees, you also almost certainly will lose your low interest rate if even one payment is late.


A Simple Alternative

Balance transfers utilizing low credit card introductory rates can be very successful, but only if the balance is paid by the end of the introductory period. Technically you could continue to transfer your balance from one credit card to another, but who wants to get into all that?

Before embarking on this path, then, a much easier alternative would be simply to get a lower interest rate on your current credit card. Just ask. Lenders want to hang on to their borrowers, so many will be willing to lower your rate as long as you have a decent credit score. Others may waive your annual fee or other expenses. You’ll never know unless you ask!

Conclusion

If your credit card balance would be much more manageable with a lower interest rate, then a balance transfer can work for you. Just read the fine print, weigh the money that you stand to save against any new fees you might incur, and consider your ability to pay by the end of the introductory period before deciding on a new credit card.

Other Debt Consolidation Options