January 26, 2021
Having multiple credit cards is a common practice. If managed correctly, it can actually benefit your credit score. However, having multiple credit cards also means you have to make multiple payments each month. Plus, with high-interest rates and personal factors, such as expenses and income, paying off several credit cards can be difficult.
A credit card balance transfer allows you to move the existing balances due to another card. The benefit of doing so is to transfer the balances to a card with a lower interest rate/APR. This will consolidate your debt, reducing the number of payments you make and the overall payment amount.
Compare Credit Card Interest Rates
Of course, you can simply transfer your balances to whichever of your current credit cards has the lowest APR, but the real savings start when you can find a balance credit card that offers a 0% introductory rate. This means your credit card balance accrues no interest each month, as long as you make at least the minimum monthly payment on time. Instead of paying your current card’s APR of 8-20%, you’ll pay 0%, but only for a limited time, depending on the promotional offer. Every dollar of every payment then goes toward reducing your balance, allowing you to eliminate your credit card debt faster.
In addition to 0% rates, many credit lenders sweeten the pot with cash-back offers, rewards points, extended intro rates, no annual fee, no penalty APR, a sign-up bonus, and other perks. Give yourself some time to look around for the best credit card offers and terms that fit your payment schedule and spending habits.
Important Balance Transfer Tips
- Balance transfers usually require a fee of around 3-5% of the total transferred.
- Transfer your balance to a card with a spending limit that’s high enough to accommodate your full balance.
- If you select a card with a 0% introductory rate, make sure to check what the rate will be after the promotional period.
- With some credit cards, your transferred balance may not be eligible for rewards.
- A balance transfer is just one part of your strategy to save on monthly expenses. Learning about other financial products and habits will have a higher payoff in the long run.
How a Balance Transfer Affects Your Credit Score
Whenever you apply for credit, the lender will pull up your credit score and each inquiry can potentially lower your score. While it might seem like it can’t hurt to apply for more than one card for a balance transfer, it actually can. Another factor affecting your credit score is the length of time your account has been open. The longer, the better. Opening several new accounts triggers multiple credit score checks and reduces the overall age of your active accounts, including your oldest ones.
When applying for a card, a credit score of 740 or higher will usually get you a card with excellent balance transfer options. You could still get great terms with a lower score, but your initial line of credit could be insufficient for a large transfer amount, which could further hurt your score due to the low debt-to-available-credit ratio.
With Age Comes Wisdom and Better Credit
After receiving approval of your new card, be sure to keep the old card’s account open. Closing accounts can negatively affect your credit score. Whereas, keeping them open will raise the average age of all your credit accounts.
As already mentioned, a balance transfer is just one part of a savvy plan to take control of monthly bills and overall spending. Take a closer look at credit expenditures to help keep them in check while you pay down the transferred balance. Use the period of 0% APR to make on-time monthly payments to get it down to zero and you’ll be amazed at how much you’ve saved.