Since the introduction of credit cards, people have been struggling with revolving debt. Unlike other loans, credit cards have high interest rates that can change without warning. For many people, that means they鈥檙e constantly on the lookout for ways to reduce their interest rate and get their debt paid off as soon as possible. For some people, one solution is a balance transfer.
There are several things that you should know, however, if you鈥檙e thinking of trying this method.
- You need to have really good credit. A balance transfer only works if you鈥檙e able to find a card that is offering a lower interest rate than what you鈥檙e currently paying. Often, the only way to do that is to improve your credit score. In order to qualify for cards with 0% rates, you need to be in the top tier of credit ratings, usually 720 or higher.
- Pay attention to how long the rate is good for. Often, new credit cards advertise what are called 鈥渋ntroductory rates鈥? These rates are artificially low for a few months, then they automatically increase. Make sure that you consider both the introductory rate and the 鈥渞egular鈥?rate on the card, especially if you don鈥檛 think you鈥檒l be able to pay off the balance on the card before the introductory period is over.
- Look for the balance transfer fee. Thanks to new legislation, credit card companies now have to prominently display the balance transfer fee on the terms and conditions page. This fee will be charged on the entire balance that you transfer immediately. For example, if you owe $10,000 and the new card has a balance transfer fee of 3%, your new balance will be $10,300 on the new card. You鈥檒l be charged interest on this amount at the end of the first month.
<p data-sp-element=”content”>If you decide that a balance transfer won鈥檛 help you with your debt problems, then you鈥檒l need another solution. You might want to consider a debt consolidation loan. With these loans there are no balance transfer fees, and you can get a lower interest rate on your debt even if you already have bad credit. Instead of transferring just one or two cards鈥?worth of debt, you鈥檒l be able to lower the interest rate on all of the cards, student loans, personal loans, and other debts that you have. As a result, you鈥檒l turn several different loans with varying interest rates into a single loan with one interest rate.