A balance transfer is done to lower or remove the interest you pay on your credit card debt. For example, if you made a purchase of $4,000 on a credit card with a 16% interest rate, to be paid over 12 months, you would be paying $640 dollars in interest alone throughout that time frame.
In the scenario mentioned above, your payment would be $387 a month. If you transfer the balance to a card with 0% interest, your monthly payment would only be $333 a month, saving you money both short and long term. We’re here to educate you on the topic by addressing frequently asked questions about balance transfers.
What kind of debt can I apply a balance transfer to?
The good news is, not just credit cards. Balance transfers can be done with various types of debt- anything that has been borrowed and is being repaid over time.
In addition to credit cards; store cards, car loans, furniture and appliance payment plans are also able to be transferred to a credit card with 0% interest.
I have so many different payments it is difficult to keep up?
No worries, a commonly known solution to this is to consolidate your debt. When dealing with multiple banks or credit cards, the due dates often get scattered throughout the month, causing a hectic situation for you to remember to pay each one.
This often causes people to accrue late penalties, stacking up the interest and debt. By consolidating your debt to one credit card, this makes it easy to set one payment on auto-pay each month, avoiding interest and late fees.
Is my debt considered repaid after I transfer it?
Well, not exactly. In a balance transfer, you are essentially paying off one credit card with another credit card. You will be scot-free and no longer have obligations to multiple credit card companies, by transferring the balance you will be left with only one bank to repay.
A balance transfer can save you from paying hundreds or even thousands of dollars in interest, depending on how much original debt there was.
It is not considered fully repaid until the new company is paid off, but this process makes it easy to begin the pathway to becoming completely debt free.
I thought I already signed up for a low-interest credit card?
Unfortunately, this is how many people get lured in and fall into mounds of debt. What credit cards don’t tell you, as it is often in the tiny, fine print, is that the 0% or low interest rate is only for the first year or so. This means you must also read the policy of the balance transfer card, making yourself aware of what the interest rate will be after the introductory period. If the interest rate after the first 12 months is at least lower than the original card it was transferred from, the transfer will still be beneficial.
Ideally, when you complete the balance transfer you should pay it off in the first 12 months, that is how to get out debt free quickly and not waste money on interest.
Now that I did a balance transfer, can I start spending money with my new 0% interest rate?
Not exactly. Once again, read the fine print. Many times, balance transfer cards only offer the 0% interest rate on the previous balance and it is not applied to new purchases.
If you read the agreement before committing this will avoid any confusions. Besides, if you already did a balance transfer to catch up on your debt and save money, it is probably a good idea to start being credit card savvy rather than careless by adding more debt.
I can just pay the 0% on my transferred balance, and I will pay the higher percentage on new purchases, right?
No, not at all. There is something called payment allocation and that is when credit cards will deduct the minimum payment amount from the entire balance on the card and they are obligated to apply the rest with the higher interest rate, not the 0% you thought you were getting.
To avoid these complications, it is best to only use the balance transfer card for that alone and not make any new purchases with that card.
Is it free to complete a balance transfer?
You know the saying, nothing in life is free. Most credit card companies use a one-time balance transfer free, which is usually 3%. Interest fees on almost all cards are usually much higher than 3%, so it is almost always a guaranteed savings rather than a loss.
Use our calculator to find out how much you can save with balance transfers:
http://www.eliminateinterestfees.com/calculator/