Great question! You can probably save some money if you can qualify! Balance transfers are an awesome way to get a better handle on your credit card debt. Debt sucks, but if you’ve got it you might as well make it suck less! A balance transfer is basically paying off your high interest rate credit card debt with another credit card with a low (hopefully 0%) interest rate. You can save some serious coin doing this!
Now, the credit card companies are nice to let you do this, but they still have a few tricks up their sleeves. Be prepared to pay a fee for transferring a balance. The fee will be a percentage of the balance, typically around 3%. So, if you’re transferring $4,000 you’ll pay a fee of $120 right away. This fee can get expensive and could deter you from a balance transfer if you’re short on cash. Which according to Forbes, is a lot of people!
Take a look at this example of how a balance transfer would work and the savings it brings:
As you see, the original card has a $4,000 balance, with an APR of 18% and a monthly payment of $200.
The card I’m transferring the balance too, has a 0% APR for the first year, then it jumps to 15%. And the fee for the transfer is 3% of the balance. Below is the result:
So, by doing the balance transfer and continuing to only pay $200/month you would be able to save almost $575. Not too shabby! See what you could save with this calculator.
It’s crucial to know the terms of the balance transfer card. Most of the cards will give you the promotional interest rate for a year or so. Once your time is up, you’re back at high interest rates – potentially higher than you’re previous card! Also, be aware of how payments are allocated towards your balance. Its best practice to keep your spending on a different card and keep your balance transfer card strictly for repaying the transferred debt.
You will need good credit to qualify for a good balance transfer card. Keep that in mind and don’t make a habit out of transferring balances; opening up multiple lines with existing balances can hurt your credit in the long-run.
Realistically, a balance transfer can be a great tool to help you save money and relieve some financial stress. It’s best to work through these decisions with a financial planner who can help you weigh the options, costs, and potential savings.
If you’re looking for some help, or want someone to confirm that you’re 100% on the right track, then check us out at TruWealth Planning and schedule a free intro consultation.