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By Lois Sullivan
If you're in debt, you may wonder what options are available to consolidate what you owe or pay less each month toward the balance. One option you might want to consider is a balance transfer, which may help reduce how much you have to pay in interest. Exploring this option can help you answer this question: "Is a balance transfer a good move for me?"
A balance transfer is a financial transaction that involves moving debt from one account to another. If you have any outstanding debt with a high interest rate, transferring it to an account with a lower rate can help you save a lot of money over the long and short term. For example, if you have debt on a credit card with a 15% annual interest rate, you might consider transferring it to a card with an introductory offer of 0% interest.
Credit card companies can often offer a low interest rate or even no interest on balance transfers, at least for a certain period. However, it's important to note that transferring the balance can incur a transfer fee, which is generally a small percentage of the total amount transferred. The average balance transfer fee is about 3% of the total balance, according to WalletHub. The limit on the account to which you're transferring your debt will also matter. Can you transfer all or only some of what you owe?
A balance transfer for finances may benefit your situation if you have a significant amount of personal debt subject to high interest rates. Those with substantial credit card debt tend to benefit most from balance transfers, as the interest rates on most credit cards are substantially high. Credit card interest rates also compound daily, which means the balance continues to go up every day you don't pay off what you owe.
You can transfer some or all of your debt to a credit card bearing a lower interest rate. Whether you do it over the long term or as an introductory offer, you can reduce how much you pay in interest. This action also lowers the amount of debt subject to the high interest rate, which means your balance won't rise as quickly. Eligibility for a balance transfer depends on your debt type and the company holding the outstanding debt. Credit and store card balances are nearly always eligible, but mortgage, small business, payday, and auto loans may not qualify.
As you consider whether to transfer your balance, think about the pros and cons of this financial option.
In addition to the pros outlined above, transferring a balance may allow you to consolidate the number of payments you make each month. If you have debt with multiple companies, you're likely required to make a payment to each, every month. But transferring balances to one transfer card allows you to focus on making one payment, which may help you to pay more toward the total balance.
Signing up for a different credit card may also qualify you for rewards or benefits once you pay off the transferred balance. You can start fresh with a new company and take advantage of what's available after you pay off your debt.
One of the main drawbacks to a balance transfer and finances is paying the required transfer fee. Since the cost is usually a percentage of what you're transferring, the amount can be substantial. Before you move forward, calculate what you'll owe for a balance transfer fee and compare that amount to what you'll save in interest.
Individuals who struggle to live within their means may incur more debt with a new credit card. Practicing willpower and focusing on paying off the debt rather than incurring more when transferring a balance to a new card is essential. Something else to consider is that any introductory interest rate you qualify for doesn't last forever. Make sure to assess the rate after the promotional period ends and pay as much as possible while you're still on the lower rate.
If it makes sense to transfer a balance from one account to another in your financial situation, use these steps to make it happen.
When looking for a credit card to transfer your balance to, it's helpful to research options with introductory 0% interest offers. Your credit history will determine whether you can qualify for special offers or lower interest rates. It's also important to note that you typically can't transfer a balance to a card with the same company, so you'll need to explore other credit card companies besides the one with which you carry the balance.
Apply for the card when you find the right card for your financial situation. You may need to complete some paperwork or enter your details online. Some card issuers can approve applicants immediately, while others may take a few days to respond.
After getting approved to open a new credit account, you can initiate the balance transfer with the new credit card company. You may need to contact the credit card company by phone or website. You'll get asked about the amount of debt you carry, the issuer and any account details, such as your account number and listed name. Some companies send convenience checks by mail, allowing the recipients to initiate balance transfers upon receipt. However, assessing the interest rate and terms is smart before returning a mailed convenience check.
It may take up to a few weeks for the new credit card issuer to approve your balance transfer request. You can typically check the status through your online account or telephoning the company's customer service department. Upon approval of the transfer request, you will see the balance in your new account.
To remain in good standing with the credit card company to which you transferred your balance and maintain good credit, you need to start making payments toward your debt right away. You may be able to schedule automatic payments that involve deducting a fixed amount from your bank account regularly. If you can pay down all or at least a large portion of the balance during the introductory period, you can save much more money with a lower or 0% interest rate.
Alliant offers credit cards with balance transfer options to members who want to consolidate their debt and lower their interest rates. The Visa Platinum credit card provides a lower-than-average transfer fee of 2%, making it an appealing option to those with higher amounts of debt. Contact Alliant to learn more or apply.
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