Credit card balance transfers offer a number of useful benefits to credit card holders.
Perhaps the most obvious (and important) is the ability to lower your existing credit card’s interest rate.
In doing so, you will save money each and every month you carry a balance, and ideally get out of debt in the process.
Balance Transfer Benefits
– Lower APR (or even 0% APR) on your outstanding credit card debt
– Lower monthly payment if you wish to pay less
– Fewer finance charges (or none for a certain introductory period)
– One single payment (if consolidating multiple credit cards)
– Reduced debt as more of your payment goes toward the principal balance
– Money saved by avoiding costly interest!
– Higher credit score eventually as debt is paid down and available credit rises
Most credit cards have an APR somewhere in the teens or above 20%, so if you carry a balance each month, you’re likely throwing away loads of money via costly credit card finance charges.
To avoid such unnecessary losses, you can move your high APR credit card balances via a 0% APR balance transfer or a low fixed-rate life of the balance transfer.
Either option will save you serious money, even after factoring in any balance transfer fees that may apply.
Let’s look at an example of the money saving benefits:
Current credit card balance: $4,000
Current APR: 19.99%
Balance transfer offer: 0% APR for 12 months, 12.99% thereafter
Balance transfer fee: 3%
In the rather typical scenario above, you’d be paying about $800 annually in credit card finance charges if you continued to carry that $4,000 balance (I’m using simple math and assuming your balance stays constant.)
If you decided to accept a credit card balance transfer offer of 0% APR for 12 months, you’d pay $120 in balance transfer fees upfront, pushing your balance to $4,120 on the new balance transfer credit card.
However, you wouldn’t be subject to paying any finance charges for a full year, so you’d save a considerable amount of money by executing the credit card balance transfer.
This is clearly the biggest benefit of a balance transfer; saving money! Lots of it!
Additionally, because no interest would accrue during the promotional period, all of your payment would go toward knocking out the debt.
The result would be a lower outstanding credit card balance and ideally a zero balance by the time the promo period ended.
Another benefit is lower payments, assuming you need payment relief as opposed to debt relief.
You might only have to make a nominal minimum payment each month, such as $10. And doing so won’t add to your debt if the APR is set at 0%.
Of course, it’s probably going to be more beneficial to tackle the debt while the APR is 0% so you can actually get out of debt.
Balance Transfers Allow You to Consolidate Debt
- Some folks like the idea of having a single monthly payment
- As opposed to multiple credit cards with varying due dates
- This might make the debt easier to manage and help them avoid missed payments
- And in effect pay it all off sooner without feeling overwhelmed
Another great benefit of a balance transfer is the ability to consolidate debt so it can be more easily managed.
If you have multiple credit cards with high balances and super high APR, you may feel overwhelmed, and unsure of which to pay first. You could even fall behind on payments, which could harm your credit score.
For some reason, consumers tackle debt better when it’s all in one place. Psychologically it makes a lot of sense.
So moving multiple credit card balances to one balance transfer credit card will make your life a lot easier.
You’ll only have to make a single payment each month, instead of trying to keep track of everything all at once.
Forget about varying due dates and different minimum payments across issuers. Just make one payment and be done with it!
Additionally, if the outstanding balance isn’t growing (thanks to the 0% APR), you may have a greater motivation to finally pay it off. And a much easier time doing so.
Keep in mind that your credit score might take a hit initially thanks to the new balance transfer credit card (and the high balance on it), but over the long term it should greatly increase your credit score as your balances drop.
Use Balance Transfers to Pay Off High Interest Rate Store Credit Cards
Let’s face it, we’ve all made a purchase at a department store or an electronics store, opting to put it on a store credit card instead of actually paying for it.
And while it may have come with promotional APR, many of us fail to pay off the entire balance before the regular APR kicks in.
So after enjoying 0% interest for 12 months, you may now be stuck paying 20% APR or higher for that big screen plasma TV or that pretty new dress.
Instead of making the minimum payment each month and getting hit with tons of finance charges, consider executing a balance transfer to move the debt to a new 0% APR credit card.
Let’s look at an example:
Department Store Credit Card
Introductory APR: 0% for 12 months
APR thereafter: 19.99%
Current balance: $1,250
So let’s assume you had an original balance of $1,500, and manged to pay it down to $1,250 over the first year interest free.
After a year, you would be subject to roughly 20% in finance charges, or $250 over the first 12 months (using simple math).
Instead of subjecting yourself to more unnecessary costs, a 0% APR balance transfer could save you a consider amount of money (hundreds of dollars even).
After all, there are currently 0% APR for 15 months offers out there with balance transfer fees as low as 5%.
Do a little math to see if a balance transfer is a good idea for your unique situation.
Read more: Balance transfer problems.