Is Balance Transfer Debt Consolidation Right for You?

September 26, 2019

By Sherry Keyles

Are you carrying high balances on multiple credit cards? Do you have to pay late fees because you have trouble keeping track of payment due dates? If you answered yes to one or both of these questions, a balance transfer credit card may be a good option.

A balance transfer is the process of moving high-interest debt from one or more credit cards to a new card with a 0% introductory APR offer. Zero-interest balance transfer offer periods range from 12-21 months.

By avoiding high interest rates for the length of the introductory period, you can apply more of your payments to the principal each month and eliminate your debt faster. In addition, you can simplify your payments with one card and one payment due date, drastically reducing the chances of missing a payment.

What Types of Debt Can You Transfer?

In addition to credit card debt, some card issuers allow you to transfer other debt such as auto loans, HELOC, mortgages, personal loans, student loans, store credit cards and gas cards. To find out if you can transfer other debt, read the card’s terms and conditions. The issuer will provide checks to transfer your other debts to your balance transfer card.

How to Use a Balance Transfer Credit Card for Debt Consolidation

Once you have the total debt amount you want to consolidate, follow these steps:

Check your credit score.

A high credit score (very good to excellent credit) is needed to qualify for the longest introductory periods available. If your credit score is low, you may not be able to get the introductory APR offer you need. With a shorter introductory period, you would need to increase your monthly payment, which might not be a viable option for your financial situation.

Look for the longest introductory APR available

Your goal is to pay off your debt before the introductory 0% APR expires. If you don’t eliminate the debt before the introductory period ends, any remaining balance will be charged at the regular interest rate, which can be as high as 26%. Getting the longest zero-interest offer available will give you more time to pay off the debt. Currently, the longest available 0% APR offer is 21 months. There are a number of cards with an 18-month introductory period. If you select a shorter offer, your monthly payment will need to be higher.

Do the math.

To determine if using a balance transfer credit card to consolidate your debt is the best option for you, add up all your credit card balances as well as any other debt you plan to transfer to get a total debt amount. Divide your total credit card debt by the 0% introductory APR period to determine if your monthly payments work for your budget.

Assess the balance transfer fees.

Most balance transfer cards charge a fee of 3% or 5% of the total amount transferred. Generally, the 0% APR offer can offset the balance transfer fee. However, when transferring balances from multiple credit cards, the fees may make a difference. Several cards on the market do waive the fees for a limited time period. You may want to start with those cards first but you will need a high credit score to qualify.

Make a list of your current credit cards.

Most card issuers do not allow balance transfers between their credit card accounts  If you have credit card accounts with Chase and Citi, you will need to search for a card with AMEX, Discover or another issuer.

Shop around.

Compare the different balance transfer cards available using the card information you compiled about your credit score, length of the zero-interest period, balance transfer fees and allowable card issuers

Apply for the card you want.

Remember each credit card application you make creates a hard credit inquiry on your credit report, so only apply for the card you really want.

Commit to eliminating your debt
Your goal is to get rid of your credit card debt, not add more debt. Do not use your new card for any purchases until you have paid off your consolidated debt. Otherwise, you may end up making your financial situation worse.Don’t spend on any of your other credit cards either. You may want to keep them open to help your credit utilization but put them away or cut them up to remove temptation.

Other Debt Consolidation Options

A balance transfer is just one tool to consolidate debt and it not right for everyone. If you conclude a balance transfer card is not right for your financial situation or your credit score is not high enough for a 0% APR offer, you need to consider other options.

You can consolidate debt with a personal loan, some type of secured loan, or a peer-to-peer loans. A large loan might allow you to combine several loans and get everything in one place. Debt consolidation loans often come with a fixed rate, so they make more sense when credit card promotional periods are not long enough to accommodate  your total debt amount.

Bottom Line

Debt can impact many areas of your life. It can lower your credit score, making it harder to secure an auto or home loan. Paying off debt is never easy but it’s an important step towards financial freedom. Debt consolidation makes sense if you want to reduce interest charges in order to eliminate your debt faster. Balance transfers are one tool to help you consolidate your debt but there are other debt solutions available. Research all your options and choose the best one for your financial situation.

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