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Understanding Credit Card Balance TransfersCredit card balance transfers can be a great way to consolidate your debts and to even save some cash in the process. But, in order to make balance transfers work for you rather than against you, you need to know a few basics.
What exactly is a balance transfer?
A balance transfer is a transaction you make with your credit card that involves moving your credit balance from one credit card to another. You might move the balances from several card to one new card or you might move the balance of just one card to another.
Why would I want to do a balance transfer?
There are two main reasons for doing a transfer: to save money on finance charges and to consolidate debt. Let’s face it, most credit cards have high APRs, which means you will pay quite a bit in finance charges. Fortunately, many credit cards offer free balance transfers to new applicants and will even provide them with an interest free period. So, if you transfer your credit balance from a card with a high APR to one with a low interest rate or with a 0% introductory APR, you can potentially save hundreds of dollars.
Transferring the balances of several credit cards to one card is also an effective way to consolidate your debts. In this way, you only need to make one monthly payment on that credit card rather than making several payments to multiple cards. This is far more convenient and helps ensure you pay all of your bills on time.
What should I look for when choosing a balance transfer credit card?
When looking for a balance transfer credit card, be sure to choose one that allows you to make your balance transfer for free. Most credit cards charge for the convenience of transferring fees and this fee can be quite costly. But, many will waive this fee for new applicants. Therefore, it is usually best to apply for a new credit card when looking to make a balance transfer. That way, you can take advantage of the free balance transfer offer.
While looking for a credit card that will allow you to transfer your balances for free, you should also look for one that offers a 0% introductory APR offer to new applicants. This way, your balance will not accumulate finance charges.
What if I cannot pay off my transferred balance within the introductory time period?
Ideally, you should pay the transferred balance off before the introductory period is over. That way, you will not have to pay any finance charges on the balance. If you will not be able to pay the balance off in full, however, be sure to select a credit card that has a low APR after the introductory period is over. That way, you will not have to pay a large amount toward finance charges when the introductory period is over. Even if you do manage to find a credit card with a low APR, try your best to pay off the balance in full at the end of the introductory period and then at the end of each subsequent billing period. That way, you won’t have to pay the credit card company a cent.
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