The way balance transfer cards work is the balance transfer cards allow you to move debt from one or more existing credit cards to a new card that has either a low or 0% introductory interest rate for a limited time period.
This helps you save money on interest and pay off your debt much faster.
With a balance transfer card you often pay a one time balance transfer fee, and you must also apply for a new balance transfer card or use a specific offer from your current credit card issuer.
And to avoid any interest on the balance transfer card you have to pay off the entire balance that was transferred before the promotional 0% or low interest rate period ends.
The balance transfer card that is best is Wells Fargo Reflect as well as Citi Simplicity and Citi Diamond Preferred that has 0% interest on balance transfers for 21 months an a 5% transfer fee.
The downside of a balance transfer is that you risk possible balance transfer fees, a potential for your credit score to drop, especially from multiple balance transfer card applications and a risk of increasing your debt if the new balances are added and possibility of paying high interest rates after the introductory period of 0% or low APR ends.
Also if you use the new balance transfer card for any purchases, the new transactions don't usually have the same 0% or low APR as the transferred balance and if you can't pay it off in time before the 0% APR or low introductory period ends you could have a hard time paying off the balance with the higher interest rates occurring.
To pay off a balance transfer, you should continue paying at least the minimum payments on the new card, and then aim to pay off the entire balance transfer amount before the 0% APR or low interest period ends, so that you avoid high interest rates.
If you can pay more than the minimum payments on the balance transfer card that will also help and then have a plan to pay off the entire balance before the 0% APR period ends, otherwise you will incur high interest rates and it will take longer to pay off the transferred balance.
You should also calculate the required monthly payment on the balance transfer to zero out the debt and then set up automatic payments for that amount if possible.
Setting up automatic payments to pay off the balance transfer can help you avoid missing any due dates and ensure that you don't lose the introductory low interest or 0% APR rate.
You should do a balance transfer when you have any significant credit card debt that has high interest rates and you have a good to excellent credit score and a good plan to pay off the transferred balance during the 0% promotional or low interest rate period to avoid any larger interest charges on the balance transfer once the promotional period ends.
Balance transfers are great when your current credit card's interest is eating away at your credit card payments and making it hard to reduce the actual debt.
To be approved for a balance transfer you will have to have a good to excellent credit score and to get approved for a new balance transfer card that has a good introductory rate.
The goal when doing a balance transfer is to pay off the transferred debt during the low interest or 0% interest period to maximize your savings.
Also balance transfers can also involve a 3 percent to 5 percent transfer fee of the transferred amount, which can be well worth it if you will gain significant savings in the interest by paying down the debt much faster.
Although if you can't pay down the balance quickly then it's usually best to avoid a balance transfer as the transferred balance may incur higher fees if you can't get the balanced paid down quickly enough before the promotional 0% or low interest rate is over.
You should do a 0% APR balance transfer if you know that you can pay the balance off.
For most cards, the 0% APR period is only reserved for balance transfers which are made within the first 60 days to 90 days, although the actual time limit can vary depending on the balance transfer card.
After the 0% APR time period of the balance transfer card has passed, any balance transfers will incur some expensive interest at the card's normal APR rate unless the balance is paid off in full.
If you can pay off the balance transfer in full before the 0% APR time is up then it can be a very good idea or if the interest on the balance transfer card is lower than the interest you were paying on the other cards or balance then it can still be worth it.
Balance transfers can have both short term negative impacts on your credit score and long term positive impacts on your credit score.
When you open a new credit card for the balance transfer it triggers a hard inquiry, which lowers your credit score a small amount but only temporarily.
Although when you transfer the balance or debt to the new card, it can also decrease your credit utilization ratio, and paying the balance down can improve your credit score over time.
Once you consolidate your debt into one card, you can then focus on making one monthly payment and paying down the debt faster.
A balance transfer can also sometimes be denied for several reasons.
Some reasons why a balance transfer can be denied are requesting to transfer too much money, attempting to transfer a balance from a card that is issued by the same lender or having a low credit score.
You may also be denied a balance transfer if you're trying to transfer a balance to a new balance transfer card and your application for the new balance transfer card is denied.
If you do get denied a balance transfer you can contact the credit card issuer to find the specific reason for the balance transfer being denied.
0% balance transfers can also be used for paying off certain types of loans like personal loans, student loans and auto loans, by transferring the debt of the loans to a new credit card.
Using the 0% balance transfer to pay off a loan can save you money on the interest.
Although you must also have a plan to be able to pay off the entire loan balance after the balance transfer before the introductory 0% APR period is over, or you can face higher interest rates on the balance that is remaining.
Although you have to find out if your card accepts loan or balance transfers as not all balance transfer cards allow you to transfer loan debt.
Also check the card issuer's policies to confirm they permit transfers of your certain loan type, like personal, auto or student loans.
You should also determine if the possible savings on interest are worth the balance transfer fee which is often 3% to 5% of the amount transferred.
The balance transfer can often be done online or by phone and by providing your new card company with the loan details.