Published On: Wed, Jun 6th, 2018

What’s a Credit Card Balance Transfer?

If you have a credit card with high interest (or a credit card with unfavorable terms overall), a credit card balance transfer may be the answer. If you don’t know what a balance transfer is — no worries. Seriously. I didn’t know the ins and outs of a balance transfer until the beginning of my “get my money together” journey.

A balance transfer is when you take a balance you have on a high-interest card and move it to a credit card that’s offering a no- or low-interest introductory period.

Usually, introductory periods last from six months to as much as two years. If you didn’t have excellent credit when you took out your credit card, you may have interest over 20%. Yikes.

When you have a high-interest card, it can take you even longer to repay your debt. But the good news is, if you’ve built a strong credit history in recent months or years you may be able to qualify for a 0% or low introductory special with a new card.

Here are some examples of balance transfer cards:

  • Chase Freedom – 0% APR for 15 months with no annual fee; 5% transfer fee
  • Chase Slate – 0% APR for 15 months with no annual fee; 5% transfer fee

 

THE GOOD AND BAD OF A CREDIT CARD BALANCE TRANSFER

Let’s cover some pros and cons of using a balance transfer card:

‘ZE GOOD

Principal is the amount that you actually used to make purchases. Whereas interest is the amount they’re tacking on for allowing you to borrow from them. If you have high interest, you may be paying a lot before you even TOUCH the principal. Not fun.

Another benefit is some cards that have balance transfer deals will allow you to make new purchases during the introductory period with little or no interest either. So you can make big purchases you plan to pay off slowly during that time just make sure you crush the balance during the special period.

Lastly, say you have a ton of credit card debt that’s impossible to pay in full within the introductory period…

You can choose a credit card offering the lowest interest at first and then transfer your balance to another low-interest card at the end of the introductory period. Move your debt around until it’s paid off to save on interest. Really, you can play the system.

Just be careful. Every time you apply for new cards it’ll appear on your credit history. You may seem less creditworthy if you’re about to buy, let’s say, a house and you have a bunch of inquiries for credit cards. But if debt repayment is your main concern, this is a viable option.

‘ZE BAD

Sure, there’s some bad with balance transfers. But if you play your cards right you can just sail smoothly into debt repayment heaven.

First, the reason that banks offer a free introductory period isn’t because they like you.

Nope. They want your business. Offering you a special deal up front takes you away from the competition and puts you right in their lap.

Card issuers are also hoping you’ll mess up during the special period. You may assume you’ll be able to pay off your balance within the free interest period, but when the time comes you may not be able to. Don’t let that happen to you.

Another thing to note, if you don’t repay your balance before the grace period ends, some companies will charge you back interest from the beginning of your transfer.

Lastly, some credit cards charge a fee for transferring your balance. Most often the credit cards that offer 0% interest during the introductory period hit you with a transfer fee.

However, depending on the interest of your current credit card, the fee may be well worth the benefit of no interest.

HOW TO TRANSFER YOUR BALANCE “LIKE A BOSS…UHH”

Feelin’ my Rick Ross impression? I knew you would. So as you can see, there are some downsides of balance transfers if you don’t handle your business.

Here are some tips to make a balance transfer work in your favor:

  1. Be strategic. Have a plan from the very beginning of your balance transfer. If you have so much debt that you can’t possibly pay it within introductory decide what you want to do after. You can choose another card to transfer your balance to or ensure the card you transfer to has relatively low interest after the special and doesn’t charge retroactive interest.
  2. Don’t make frivolous new purchases. You shouldn’t party like it’s your birthday on the card you transfer your balance to even if it doesn’t charge interest on your new purchases right away. Why? Because that may hinder you from being able to pay your old debt within the introductory period.
  3. Establish a payment plan. Do not go into an introductory period thinking you have all the time in the world to pay off your balance. Time flies. Before you know it you’ll be in the last few months leading up to the end of your promotional period. And if you can’t make the final payments you’ll have to scramble.
  4. Read the fine print. Like with any contract, there’s plenty of fine print with credit cards. Do your due diligence and make sure you know what you’re signing up for before you take the plunge.

MY BALANCE TRANSFER CARD EXPERIENCE

I used a balance transfer card to pay off debt so I can speak from the experience that it works! One of our top choices was the Chase Slate because it has a 15-month balance transfer period, no transfer fee and 0% interest.

But that’s not to say it’s the best option for your unique debt situation. Take a look at the card market before making a decision and to make sure you understand the conditions of the transfer in and out before taking the leap.

I’ll update you in another post explaining our experience including the steps of going through the actual balance transfer.

The post What’s a Credit Card Balance Transfer? appeared first on Tay Talks Money.

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Did you know?

African Americans are significantly more likely to have some type of debt (94%) compared with the general population (82%). Credit card debt, student loan debt, and personal loans are all significantly higher in the African American community.

Source: Prudential’s 2013 "African American Financial Experience" study