Prepare for Recession with a Balance Transfer Credit Card

October 19, 2019

By Sherry Keyles

With the U.S. economy expanding over the past 10 years, many indicators point to a recession on the horizon. Some economists believe a recession could occur within the next 18 months, even as early as the first half of 2020.

While we can’t be sure when a recession will occur, now is a good time to prepare for a possible economic downturn, especially your credit card debt. The less debt you have, the lower your risk of defaulting. In addition, less debt makes it easier for you to get a loan if you need it.

Recessions occur when growth stops and the economy starts to shrink. They can vary in severity and length.  While you may be managing your credit card payments currently, a recession could drastically change your circumstances.

Job losses and a decrease in wealth are symptoms of a recession. If you are laid off as a result of the recession, you may be out of work a year or more, limiting your ability to pay down your debt.  One important step you can take to eliminate your credit card debt is to obtain a balance transfer credit card with a 0% introductory APR offer

How a Balance Transfer Credit Card Help Reduce Debt

A balance transfer enables you to transfer your existing high-interest credit card debt to a new card with a zero-interest promotional offer.  Because you avoid paying interest for a period of time, you save money on interest and can pay your debt off quicker since you are paying off the principal.

To maximize your savings, you need to pay off your balance before the introductory period ends. Otherwise, your interest rate will increase as high as 26% and you may end up paying instead of saving money.

Before you start shopping for a balance transfer credit card, you should determine if a balance transfer credit card is the best option. Start by figuring out your total debt amount and calculate how much you can afford to pay each month.

Here are a few things to consider before you apply for a balance transfer credit card:

Most balance transfer credit cards require very good or excellent credit (Credit score of 700 or higher)  to qualify for the 0% APR offers. Check your credit score before applying.  If your credit score is lower than 650, your chances of approval are low. If you don’t think your score is high enough to get approved, don’t apply. Every time you apply for a new credit card, a “hard inquiry” is placed on your credit report. Applying for too many credit cards can indicate to lenders you are a higher credit risk and have a small but negative impact on your score.

Most card issuers charge a 3% or 5% fee on the transferred amount. In some cases, the fee is offset by the 0% APR offer. However, if you have debt on multiple credit cards and want to consolidate all balances to your new card, you may cancel out any savings from zero-interest offers. You may want to look for a card without a balance transfer fee (there are only a few)..

Most balance transfer offers range from 12-18 months although the Citi Simplicity Card offers 21 months of no interest. To ensure you pay off your balance before the 0% APR offer expires, select a card with a longer introductory period.

If your debt is too large to pay off in 21 months, you should consider another offer. Conversely, if your debt is small enough to pay off in six months, a balance transfer is probably not a good idea. Many cards charge a balance transfer fee on the transferred amount.

In order to keep the introductory rate, you need to make minimum monthly payments by the due date. If you miss a payment, not only will you be charged a late fee, you could lose the 0% APR. Make sure you read the terms and conditions before applying for the card so you don’t get any surprises. While economists are mixed on when we might see a recession, taking steps now to eliminate your credit card debt will put you in a better financial position if an economic downturn occurs. A balance transfer credit card can be very useful in helping you get your finances in order.

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