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Balance transfer credit cards can be a great option if you’re facing high-interest credit card debt. But it takes careful planning to get the most out of a balance transfer.
A balance transfer card can help you pay off debt faster and save some serious money on interest. But it won’t necessarily solve all of your debt problems on its own. If you’re looking for some relief from your credit card debt, make sure you know the ins and outs of a balance transfer card before you apply.
What you should know before deciding if a balance transfer is right for you
A balance transfer lets you move your credit card debt balance onto a new credit card that likely has a 0 percent intro APR offer for balance transfers, and possibly a lower interest rate for balance transfers as well. You could transfer the balance from one card, or you may even be able to consolidate multiple credit card balances onto the new card.
But before you decide whether a balance transfer is right for you, there are some things you should consider.
1. There may be a fee.
Balance transfer cards may charge fees to complete a transfer. While some cards waive this fee for an introductory period as a special offer, others may charge a fee.
A balance transfer is only worth it if the fee you pay is less than what you stand to save in interest. Even then, you should work out whether you can truly pay down the balance in the introductory period.
2. You may not be able to transfer all your debt.
The credit card issuer will determine your maximum (and possibly minimum) transfer limit, and the limit you’re assigned may not match how much debt you’d like to transfer. If this is the case, you may have to pay down the transferred balance and any remaining balances at the same time.
3. Is there an introductory APR offer?
Look for an introductory 0 percent credit card APR offer for balance transfers if you’re thinking about applying for a balance transfer card.
Remember, it’s important to know how long the promotional period lasts. A balance transfer should help you pay off debt and save money on interest since you can take advantage of the low interest rate. If you still have debt on the card when the promotional period is up, your interest rate will likely jump and you’ll be stuck with interest-accruing debt again.
Bottom line
Before you apply for a balance transfer card, ask yourself: Why did you get into debt?
If you don’t address the issue, getting a new credit card with a lower interest rate won’t necessarily solve the problem. For a balance transfer to truly work for you, you should be able to afford the monthly payments, be ready to change your financial picture and commit to getting out of debt.