When thinking about managing credit card debt, a person may be considering a credit card balance transfer. A credit card balance transfer is the process of transferring small, high interest debts into one large, low interest form of debt—in this case, debt is transferred to a credit card.
This is one of the major methods of debt consolidation. Credit card balance transfers may be a good way to organize debt and may even lead to the elimination of debt. Here is more information about credit card balance transfers and how they work.
Am I Good Candidate for a Credit Card Balance Transfer?
There are a few factors to consider when thinking about whether or not credit card balance transfers are right for you. Take a look:
· Having Good Financial Habits
People acquire balance transfers to try and manage debt; this process is not designed to teach a person good finincal habits. So if an individual does not already have good financial habits in place, credit card balance transfers may not be the best way to handle debt.
· Your Debt to Income Ratio
Generally, balance transfers are a good idea if a person’s debt does not equal more than fifty percent of their household income.
· Have a Good Credit Score
One of the main points of acquiring a credit card balance transfer is to find a new credit card with a lower APR—the annual interest rate. If a person does not have good credit it means that the interest rate on any of their new cards may be high- and so not worth a credit card transfer.
· The Time it Takes to Pay Off Existing Debt
Generally, if a person’s existing credit card debt will only take a period of six months to a year to pay off, credit card balance transfers may not be the best idea. The reason for this is because balance transfers usually extend the loan duration—meaning paying more interest.
Credit Card Balance Transfer—What Credit Cards Work Best?
If an individual thinks a credit card balance transfer is right for them, the next step is to find a credit card that best suits their needs. There are actually credit cards out there that are best suited for balance transfers. The best cards for managing debt will have the following characteristics:
· Low Cost or Free Balance Transfer
Most credit cards have balance transfer fees associated with them; however, there are certain cards out there that have very low transfer percentage rates. These cards charge for incoming transfers or other may even offer that service for free. Finding a card that has low transfer charges can be extremely beneficial for credit card balance transfers.
· Zero Percent APR for the Introductory Period
Like mentioned above, having a card with low interest is an important part of credit card transfers. The best cards for managing debt will ideally have a zero percent introductory interest rate.
o Low Interest for the Remaining Period
It is important to pay attention to the amount of interest being charged after an introductory period—as the interest rates tend to go up by a large percentage.
· Have Low Fees
Almost all credit cards have certain fees associated with them. Here are a few of the most common types of fees:
- Annual Fees: A yearly fee for having a credit card.
- ATM Withdrawal Fees: Fees usually associated with using out-of-network or independent ATMs.
- Late Payment Fees: A fee for missing a monthly payment—may stack until a payment is made to the account.
- Cash Advance Fees: Some credit cards have fees for taking out cash.
- Balance Transfer Fees: A fee for transferring existing debt onto a credit card.
Before choosing a card, it is important to review what those common fees are for a specific card, and then find one that best suits an individual’s needs.
Can Credit Card Balance Transfers Only Be Used to Manage Credit Card Debt?
When using this method to manage debt, credit card debt is not the only kind of debt that can be transferred over. In fact, almost every kind of credit account can transfer over. Here are a few of the most common types of credit accounts (other than credit cards) that a person may want to transfer over:
- Car Title Loans
- Student Debt/Student Loans
- Personal Loans
- Home Equity Loans
There is one exception of credit transferring to keep in mind. When it comes to transferring credit card balances it may be helpful to know that a customer cannot transfer a balance from cards that are issued from the same bank or the same lender. But other than that exception, credit card balance transfers are pretty flexible.
Before seeking out a credit card balance transfer, it may be helpful to understand how the process works and whether to pursue one. This method of managing credit works fairly simply: it involves transferring debt into one credit card that carries low interest rates and low balance transfer fees.
The best candidates for balance transfer credit cards are those who have good financial habits established, a good credit score, and don’t have a large amount of debt in relation to their income. One major advantage of credit card balance transfers is that they can be used to manage several different kinds of debt.