Navigating your way to mountains of credit card debt is easy. But finding your way out of towering balances while interest fees exhaust your hard-earned money? That’s the true challenge.
This is where balance transfer cards can serve as your ladder to become debt-free. By transferring existing balances to a new card with a promotional 0% APR period, you can drastically reduce interest costs during debt repayment.
This guide will uncover everything you need to know about how balance transfer cards work, their benefits and risks, finding the best offers, and using balance transfers strategically as part of your customized debt reduction plan.
What Exactly Is a Balance Transfer Credit Card?
A balance transfer card is simply a credit card you can use to transfer outstanding balances from other existing cards over to the new account. The key benefit is that these cards offer a promotional 0% APR period, typically lasting from 12-21 months.
Credit card debt statistics and facts worldwide show that during this introductory period, any balances you transfer over do not accrue interest. This temporarily halts the endless compounding interest costs that make credit card debt so challenging to overcome.
Balance transfer cards offer this 0% interest incentive as a way for credit card companies to attract new customers away from competitor cards. You can transfer balances from any card issuer – Visa, Mastercard, American Express, Discover, department store cards, etc.
However, the 0% deal only applies to transferred balances, not new purchases made on the card. Once the promo period ends, a standard APR (maybe around 16-25%) will apply to any remaining balances.
How Does the Balance Transfer Process Work?
The balance transfer process is straightforward:
- You first need to qualify for a balance transfer credit card based on your credit score and profile.
- Next, once approved, you can transfer any outstanding balance up to the card’s credit limit over to your new account. This is done by requesting balance transfer checks from the new card issuer and using them to pay off other card balances.
- You then make monthly payments on the transferred balance during the 0% intro period as you normally would, except without racking up interest.
- Before the promotional period expires, any remaining transferred balance must be paid off or converted to the standard APR.
That’s the simple mechanics. However, maximizing balance transfer benefits requires strategic planning.
Key Benefits of Balance Transfer Cards
1. 0% Intro APR Period Saves Significant Interest
The core benefit is the 12-21-month reprieve from interest charges on transferred debt. Considering credit cards carry APRs averaging around 19%, this 0% intro period allows you to channel monthly payments entirely toward reducing principal debt.
You can calculate potential interest savings using an online balance transfer calculator. For instance, transferring $5,000 at 19% APR to a card with a 15-month 0% intro period would save over $600 in interest compared to paying down the original card!
2. Low or No Balance Transfer Fees
Many balance transfer cards either waive or offer very low balance transfer fees, typically around 3% of the transferred amount. Transferring high-interest credit card debt to escape interest fees while only paying a low 3% balance transfer fee is an extremely worthwhile tradeoff.
Always compare balance transfer fees when exploring card options to minimize this cost.
3. Faster Debt Repayment
Without wasting money on interest, you can use balance transfers to accelerate debt repayment during the 0% period. Making equivalent monthly payments on a 0% balance transfer card compared to a high-interest rate card allows you to chip away at the principal amount much faster.
4. Easier Debt Consolidation
If you have balances to settle across multiple credit cards, balance transfers allow you to easily consolidate everything into one place with a single monthly payment. This simplifies keeping track of payments and repayment progress.
5. Breathing Room in Your Budget
Particularly when paired with wise budgeting, the 0% interest provided by balance transfers offers breathing room to get finances back on track. The money saved on interest can be redirected towards an emergency fund, retirement, or other important goals.
6. Improve Credit Through Responsible Use
Exercising financial discipline by consistently paying down transferred balances each month demonstrates positive credit management skills and helps improve your credit standing over time. This enables access to better credit products with long-term savings.
Tips for Finding the Best Balance Transfer Card
All balance transfer cards are not created equal. Finding one well-aligned to your needs involves strategic comparison shopping:
- Compare promotional period lengths – Cards offer 0% APR intro terms ranging from 12-21 months typically. Look for at least 15-18 months.
- Assess balance transfer fees – Some cards charge no fee, while others charge a percentage of the transferred amount. Aim for fees of 3% or lower.
- Review credit requirements – Income, credit scores, and other eligibility metrics vary across cards. Realistically evaluate if you can qualify for the selected card based on your credit profile.
- Consider ongoing rewards – Some cards offer great rewards on new purchases after the intro period. Assess if these provide value after paying off the transferred balance.
- Research deferred interest policies – Carefully read the terms and conditions documents to understand deferred interest implications if transferring a large balance you cannot fully repay within the promo term.
- Compare issuers – Explore balance transfer offers from major issuers like Citi, Chase, Capital One, Amex, and Discover and go with the best-aligned option.
Performing due diligence allows you to zero in on a balance transfer card that offers maximum savings with minimal risks given your financial situation.
Strategic Ways to Use Balance Transfers to Reduce Debt
Simply getting a balance transfer card is not enough. To effectively minimize interest costs, you must use balance transfers strategically within the context of a broader debt reduction plan:
- Transfer only balances you can fully repay within the promo period.
- Maintain on-time payments and pay at least the minimum due amount each month.
- Keep existing cards open but refrain from new purchases (use only for emergencies).
- Pay down the highest APR debts first via the balance transfer card.
- Use savings to simultaneously build an emergency fund for added financial cushion.
- Consolidate other debts (personal loans, etc.) via lower-rate balance transfer cards if feasible.
- Once the transfer card’s term expires, research new promo offers to shift any leftover balances, and repeat the cycle.
- Close accounts once debt-free and transition to a low-cost credit builder card for occasional spending.
The key is utilizing 0% intro balance transfers as one strategic component within a comprehensive debt payoff plan tailored to your unique finances.
Frequently Asked Questions
How long do balance transfer promotional periods typically last?
Most balance transfer cards provide a 0% intro APR for between 12-21 months on transferred balances. 15-18 months is most common. Evaluate how long you need to fully repay the balances when comparing card terms.
What credit score is needed to qualify for a balance transfer?
Balance transfer cards generally require good to excellent credit, in the 690-750+ FICO score range. Those with lower scores can possibly still qualify by reducing the transfer amount requested. Checking offers pre-qualified for your credit profile is wise.
Should I close old credit cards after transferring balances away?
Experts typically advise keeping old cards open but inactive, as having available credit helps your utilization ratio and credit mix, even if balances are transferred away. Closing old cards can temporarily hurt your credit score.
What debts can I transfer to a balance transfer card?
Balance transfers only work for transferring unsecured revolving debt like credit cards, retail cards, and personal loan balances. Secured debts like auto loans and mortgages are ineligible for credit card balance transfers.
Key Takeaway
Balance transfers can help you drastically trim down the interest costs in your debt repayment journey. Strategic balance transfers combined with regular monthly payments, controlled spending, and budgeting can boost your debt reduction plan’s effectiveness and accelerate your path to financial freedom.
