A balance transfer allows a credit card holder to pay off a current card's balance by converting it to another card. Customers are typically drawn to credit card balance transfers in order to take advantage of lower promotional interest rates and other incentives such as rewards plans, points, and so on. By waiving the balance transfer fee, most credit card companies hope to entice cardholders. They could also sell a 6- to 18-month promotional period during which no interest is paid on the amount transferred.
To get the most out of these deals, you must examine them carefully. You will achieve a major benefit while avoiding high interest rates during debt repayment if you pay attention.
When you make a balance transfer, you must pay an interest rate of 3 to 5% of the total transferred amount, which is known as the balance transfer charge. While this can add up to a significant sum on top of your balance, it is likely to be less than the cost of a high-interest credit card. It's crucial to figure out how much money you'll save with a zero-interest credit card over the current monthly interest rate. Choose what’s better for you- a card with 0 percent interest for an introductory period with an applicable balance transfer charge, or one without the zero-interest feature but no balance transfer fee.
If you want to apply for a new credit card, be aware that your credit score will suffer a significant drop. Whether or not you are eligible for the card, your credit score will suffer as a result of the inquiry. If you cancel your original credit card after making a balance transfer, your average account age will drop, and your total available credit will decrease. So, be wary of these variables having a negative effect on your credit score. Not closing the original card but continuing it with a zero balance is an easy way out of this mess. Nonetheless, it's safer to close the original card if you're quickly tempted to use it.
It's important to note that the zero-interest deal is only valid for 6-18 months, and that once the promotional period ends, the Annual Percentage Rate (APR) will increase. Don't be tempted by the low APRs; instead, aim to pay off your balance within this time frame. Make sure you don't miss out on the chance to pay off your debt when interest rates are still low, and so you don't start accruing high interest on your balance again.
To take advantage of a 0% promotional rate of interest, your application must be accepted. Also, if your 0% balance transfer credit card's credit cap is so poor that it doesn't even cover the amount you need, the card won't be able to support you (even if you've been approved for one). Every month, you'll actually have to pay two sums instead of one. As a result, try to read the fine print of what you're signing up for. Since promotional APR rates will exclude balance transfers, double-check if the 0% interest rate applies to both balance transfers and purchases, as many companies do.
It's best to avoid getting a new credit card if you're an impulsive shopper. If you keep adding debt to the original balance transferred from another credit card, you'll soon find yourself in a worse situation than before. Most of the time, the 0% interest rate isn't true for new transactions, which means you'll start accruing new interest as soon as you make the new purchase. As a result, it's best if you don't use your balance transfer credit card to make new purchases.
Your main priority should be on using your balance transfer credit card to strategically reduce your debt. Be sure to ask about each and every term, from the introductory rate's expiration date to the interest rate after the introductory period, the relevant balance transfer fee, and the minimum monthly payment.
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