Paying off Debt with Balance Transfers: Is It a Good Idea?
Updated: February 4, 2021
Paying off debts can be expensive. Fortunately, one tool can make this process cheaper. This is a balance transfer. Balance transfers allow you to consolidate your credit card debt onto a new card. A good balance transfer card will have a zero or near-zero interest rate for balance transfers during a certain period. By transferring the debt to a credit card with a lower interest rate, you effectively buy yourself more time to pay down this debt. In effect, you’re paying the same loan minus the interest rate.
Factors to Consider While Choosing a Balance Transfer Card
When choosing a credit card for a balance transfer, you should pay attention to a few critical things.
- You should get a card with a zero or near-zero promotional APR for balance transfers.
- The card should also have a low balance transfer fee.
- You should select a card that has a credit limit high enough to cover the transferred balance.
Who is a Good Candidate for a Balance Transfer Card?
Not everybody is a good candidate for balance transfer credit cards. In general, the best applicants are those who possess the following features.
- They have a suitable credit score. To qualify for a card with a balance transfer feature you need to have a credit score of 701 or more. You will also need to qualify for a credit limit that covers the amount of your debt.
- They can pay off the debt before the promotional period expires. You need to have a plan to successfully pay off the debt by the time the promotional period ends. More importantly, you need to be able to stick to the plan. It’s important that you select a card that will give you enough promotional time to fully get rid of your debt. Once the promotional period wears off, the interest rate on the card will jump to a higher rate.
Avoid 0% Balance Transfer Traps
Paying off Debt with Balance Transfers Effectively
Once you are approved for a balance transfer card, you can pay off the balance from your previous card via the Internet or over the telephone. Balance transfers take about two weeks to be processed. When the balance is transferred, pay off your card as soon as possible. Balance transfers can help your monthly payments decrease, saving you money every month. This is because your monthly payments during the promotional period go towards paying the principal, not the interest.
When you completely pay off your credit card balance, don’t incur any more debt. You’ve done a lot of hard work to pay off your debt, and you should not get into debt all over again.
Use Balance Transfer Cards Wisely
Balance transfers are great if you can qualify for them, and have a plan to pay off your debt completely and on time. Use this balance transfer calculator to see if transferring your balance to another card will really save you money. Consider all fees and rates when applying for a balance transfer credit card. If the terms are good, paying off debt with balance transfers can be successful.