Mastering Balance Transfers: A Step-by-Step Guide to Save Money

Credit card debt can be pretty heavy if your interest rates are seriously high. One of the big things you could do to control and reduce that is called a balance transfer.

It basically lets you transfer your existing credit card debt to a totally new card with a different-and usually much lower-interest rate. In that way, you will pay less in interest and pay the debt off faster.

This article shall walk you through balance transfers step by step, guide you through the benefits and pitfalls, and thereby give you the steps you should take to best utilize such a financial scheme.

Understanding Balance Transfers

A balance transfer is simply the act of transferring one or more credits from a specific credit card over to another credit card, with a relatively lower interest. Most credit card companies offer promotional balance transfer rates. Sometimes as low as 0% for a specified period-this usually ranges between 6 and 21 months.

This also means you are not charged interest on the amount transferred in this promotion period, so more of your payments go towards the principal.

Benefits of Balance Transfers

Lower Interest Rates : The largest benefit of balance transferring is saving money by way of interest. You are pretty much reducing the carrying cost of your debt when you shift your debt to a card that has a low or zero-interest promotional rate.
Debt Consolidation: If you have more than one credit card with a balance, the possibility to transfer your balance may be a consolidator of debt into one payment. Better wording would be simplification and can actually help increase the efficiency in managing the funds and eliminating missed payments.
Improvement of Your Credit Score: All those moves which prove helpful for the quicker pay-offs of debts and maximum decline in your utilization ratio will automatically benefit the credits as well. In that way, management of balance transfers will continue showing responsible credit behavior to the creditors through further payments of debts responsively.
Less Stress: You may have lots of high-interest credit card repayments. Consolidation of your loan can reduce some of the monthly payments and ease some financial stress on the part of the applicant.

Dangers of Balance Transfer

Even though balance transfer is known to many advantages, it does not mean you are above knowing the risks which might develop in the process:

Balance transfer fee: Most credit card companies make you pay to transfer a balance. The fees typically range between 3% and 5% of the amount transferred. Because the percentage is per your balance, it will add up fast, so you really need to figure out if the savings you get by paying less interest is worth paying for the balance transfer fee.
A good idea would be to make a plan and pay this balance off before the card reverts back to regular interest. Promotional Period Ends: This 0% or low-interest promotional rate is only usually for the short term. Of course, at the end of the promotional period the interest rate will revert to the regular rate of the card-which can be a lot of money.
Impact on Credit Score Opening a new fresh credit card to transfer balance indeed impacts the credit score. Indeed, there is a possibility of some transitory impact because of a hard inquiry from an application, but closing old accounts will have implications on the credit utilization ratio and length of credit history.
Spend Temptation Now that you’ve acquired a new credit card and have available credit, you likely will be tempted to make some new purchases-mostly if the credit card offers a promotional period for purchases. Usually, this creates more debt instead of less.

Credit Card Balance Transfer Process

Your Debt Status: Consider your status of debt before opening a balance transfer and look at how much you owe on other credit cards, the interest rates charged on those accounts, and your regular payments. Compute how much you’re paying in interest currently and when you will pay that debt off completely under your current plan of payment.
Research balance transfer offers: shop for a few cards that would offer the most attractive balance transfer offers. Of course, among other things, the size of the promotional 0% interest period, the standard interest rate that kicks in after the promotional period, and any fees associated with the transfer are most important.
Check your credit score: You really rely on your good credit score to get approved and at what terms you may qualify for a balance transfer card. The high your credit score is, the better your chances are of getting great deals. You can get your credit score through free sites online, your current credit card company, or any credit bureau given to you.
Apply for the Balance Transfer Card: Once you shortlist, apply for that card, which will best work in your favour. You will be needed to provide personal information that specifies current income, employment status, and data about the outstanding debt. Some issuers allow you to make a balance transfer during the application process.
Start transferring the balance: When you receive the go ahead from the application, visit the new credit card company and initiate a balance transfer. Let them know the accounts you wish to transfer and the amount you will transfer.
Monitor the Transfer: Balance transfer takes sometime as it might take days or a week for it to be effective in most cases. It is advisable to keep making your old credit cards payments until you are sure that your new balance transfer was successful without being charged with extra fees to avoid being penalized late or negatively flagged in your credit score.
Actual cost: Pay as much of the debt in as little a time period as possible after doing the balance transfer. Pay the required amount per month and pay off the balance before the promotional rate expires. Actually, it will help you maintain a tight budget and not incur new charges on the new credit card.
Do Not Close Old Accounts: You should not close the old credit card accounts even though all the balances are moved. You would otherwise grievously damage your credit utilization ratio and also length of your credit history by closing accounts.

Example

To explain how balance transfers work, let’s consider the following two examples:

Scenario 1: Successful Balance Transfer

Balanced Transfer Card with a 0% APR for the first 12 months and with a balance transfer fee of 3% of the amount transferred.

Balance Transfer Fee = $10,000 x 3% = $300
Total Amount of Debt After Transfer $ = $10,300

You would save the interest you would have paid on $10,000 at 20% APR-about $2,000 in a year-by moving the balance to the new card. Paying off the $10,300 within the promotional period of 12 months, you will have saved a good amount on interest.

Scenario 2: Balance Transfer Gone Wrong

Old Balance : $5,000 on your credit card with a 15% APR

New Balance Transfer Card: 0% APR for 9 months, 5% transfer fee

Transfer Fee: $5,000 x 5% = $250

Total Balance After Transfer: $5,250

Regular APR After promotion: 22%

For instance, if you cannot pay back the balance amount of $5,250 within the time period of 9 months and the outstanding balance possesses an APR of 22%, then the interest that can be charged inflates to rates higher than when you first started.

Tips for Successful Balance Transfers

Best Card Pick-up: Once you are picking a balance transfer card, you should opt for the card that includes the longest period of 0% APR and accompanies the least possible fees associated with it. Look at a few offers, read the fine print accompanying those, and look for caveats or restrictions.
Plan Before Repayment Do get a payment schedule before applying for any balance transfer so that you can pay back the debt before the actual time when higher interest rates are incurred during the promotional period.
Do not increase your debt: After you have moved the balances, do not merry-go-round those old credit cards or new on those additions of debts and come up with new additions of debt. Ensure that you continue working towards paying off the shifted debt such that you do not worsen your financial situation than how things were in the beginning.
Stick to your track: Get your statements regularly and keep track of your pace regarding the repayment. Then, you will be much motivated, and by all means, you are likely to reach your reimbursement steps.
Control: save all your documents showing previous accounts, amounts stuck or transfer balance information. This way, you know where you stand on financial liabilities and most importantly, avoid penalties or complexities.

Transfers – Debunked Myths

“Balance transfers will automatically improve my credit score.” While shifting may indeed be part of how you’re moving to improve utilization, this won’t catapult you into a higher credit score. Good credit management and timely payments are how you build up and improve your credit.
I will be able to move my entire balance from the current credit card into a new one. However, balance transfer cards have limits on the number of transfers allowed to indicate how much you are supposed to shift, which probably would not be an ideal amount to pay for your whole existing balance. Therefore, research the conditions associated with limits on the card.
“I can transfer balances from other cards issued by the same bank.” Most credit card issuers won’t let you transfer a balance between their own cards. Read the rules on the transfer so that you’ll know ahead of time whether you’ll be able to move some or all of the outstanding balance to the new card.

How Our Team Brainstormed These Ideas

What the money areas where the balance of a credit card could be transferred, and what we have learned by experience, being individual workers with creditors assisting credit card debtors.

For ease of wording, we figured that balance transfers can be one easy way to save on money and potentially headache-inducing if not done well. Just by practical experience alone, we can and should learn common pitfalls and best practices.

The guide is based on recent research in the industry, trying to provide practical and actionable advice with which to base choices in making the most of and empowering decisions about managing debt and ultimately reaching its end product: reaching financial goals.

Conclusion

Balancing transfer would serve as a decent source for saving some extra money on interest and debt management, but proper planning, disciplined spending, and proper knowledge of terms and conditions involving the new credit card are all required.

This may finally be the effective use of the balance transfer to your own benefit with mastering control over your financial future and the right balance transfer offer, a realistic repayment plan, and no new debt.