What is balance transfer in credit cards? - Smashers Hub

A balance transfer credit card is a good way of consolidating your current debts into one simple, monthly payment.

Balance transfers can be an effective tool to help you pay off what may seem like insurmountable debt and get back on track.

It's important to keep in mind that while this option can save you on interest payments, it does usually come with a small fee.

What Are Balance Transfer Cards?

A balance transfer card can save people that are struggling financially quite a bit money .

The trick here isn't what you'll have to pay in annual fees, what it comes down to is what you spend on your balance transfer card . If you're transferring balances from one high-interest credit card that has a set interest rate of 28% onto another high-interest credit card that has a 14% interest rate, what this can mean for what you owe each month is substantial.

For example, if what you're paying to the regular credit card is $500 while what you're paying each month toward your second credit card with only an introductory 3% APR offer will cost about $429 … what's the difference?

What Are Balance Transfers?

Balance transfers aren't actually shifting what you owe from one place to another, but it does affect what monthly payment is required of you as well what the money goes toward what the debt itself is rather than just trying to pay off any interest fees.

What can happen to your credit score? When someone applies for a new loan (even if it's just a store credit card), this can impact what they make qualify for — and that includes what their interest rates will be as well what their approval chances are.

For those that apply primarily because of what transferring the balances means for their cash flow, they may want to consider how this could affect what existing credit cards as well .

Overview Of Benefits:

  1. Lowering your overall interest rates by consolidating what you owe on multiple cards with high interests rates onto one card with a lower rate (this will also lower what you need to pay each month)
  2. Transferring balances from higher interest credit cards gives more available spending power for new purchases - especially if the new card offers no or low annual fee
  3. Transferring balances allows you to close accounts that have annual fees or are not being used
  4. Transferring balances can be a great way of closing credit cards that have high interest rates but rewards programs that are unlikely to get any value from.

For example, if there is an annual fee on your card, closing the account after transferring the balance might be advisable.

The balance transfer will still count toward the minimum payment amount and it may include some reward points while you pay off what you owe.

You can then apply for another card, or simply stick with what's in your wallet now - without having to pay an annual fee each year!

Creating An Appropriate Budget

Balance transfers are most useful when they allow you to create a new payment plan that more closely aligns with what you can actually afford.

For some people, this could be as drastic as cutting what they spend on groceries in half each month.

For others it might only mean spending a little less on eating out or shopping for clothes.

If you want to make a balance transfer work best for your financial situation, the first step is creating a budget and identifying what you can do without, what will still be an important part of your life and what things bring enough joy and happiness that they're worth keeping around.

What Is Balance Transfer In Credit Cards?

Credit Score and Balance Transfers: If you're applying for a new balance transfer card with a lower interest rate, there can be consequences to what happens to your credit score.

When someone applies for a new loan (even if it's just a store credit card), this can impact what they make qualify for — and that includes what their interest rates will be as well as what their approval chances are.

For those that apply primarily because of what transferring the balances means for their cash flow, they may want to consider how this could affect their existing credit cards as well.

Just remember that those cards may now have less available limits since some of what you owe will be shifted to the new account - what that means for your credit score is unclear at this point.

Credit Card Balance Transfer Fees:

Balance Transfers come at a price - most credit cards charge a fee of 3% - 5% of what's being transferred into their account (either $5 or a percentage of what is being transferred, whichever is higher ).

This means a balance transfer fee of $150 - $250 on a $5,000 credit card debt.

You should also consider what's going to happen during the promotional period you signed up for when transferring your balance over.

If there isn't much time left in the promotion when the balance transfer ends, it could end up costing significantly more in interest charges than what you were trying to save in the first place.

How Much Can I Save?

Let's say that when you consolidate all your cards into one card with a 12% rate , you'll be paying a total of $1,500 toward principal and interest per month (including any other fees).

By taking out a new credit card with a 0% introductory APR for 12 months, you'll have a total of $300 in fee savings .

In this example, what you save on transfer fees will be lost to what you owe on interest payments after the promotion ends.

What Can I Do With The Money Saved?

In order to make the most out of what you're saving from transferring your balances, try looking at what expenses can give way or cut completely.

If you're struggling to decide what types of spending are more important than others, here are some items that might be worth sacrificing until your debts are paid off:

  1. going out to eat each week
  2. Weekly manicures and pedicures
  3. Bi-weekly salon visits - daily lattes or breakfast sandwiches
  4. monthly subscription services like Netflix or Amazon Prime.

Just remember that what you have left over each month what's enough to cover them may actually be changing what the credit card companies allow.

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